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Black Swan - Are you prepared?

  • #61
  • Oct 19, 2016 4:56am Oct 19, 2016 4:56am
The only valuable input I read in this thread:
-Trade through a legal structure with limited liability...NEGATIVE BALANCE PROTECTION.
-Adjust your trade size to survive a 1000/2000 pip swan.
-People argue that reduces your grouth (provided youré profitable right?).
-That is correct.
-Hoping your "tight stop" will be "honoured" by the broker on the few seconds before meltdown, is just wishfull thinking.

-In the end of the day: we all need to update our math as an ongoing process.
Remember trading Forex was a business right?
Ever heard of Excell..?

Only pros survive and take the pot home..most will loose it all...some even all their property...

NEUBIES BEWARE..
  • #62
  • Oct 19, 2016 1:13pm Oct 19, 2016 1:13pm
Tight stops during slippage, no way broker will fulfill them .. We have at least to examples in last two years, that stop-loss is useless when there is extraordinary move on market. One was SNB on 15th January 2015, when they removed the floor and second was few days ago when GBP/USD fell from 1.24 to 1.18 during just minutes in Asia trading hours where liquidity was small ..

Stop-loss did not help at that times. Ask for example Sports Direct who had stop-losses on board and now they are hedged at 1.2000 and lower ...
  • #63
  • Oct 19, 2016 10:46pm Oct 19, 2016 10:46pm
Quoting cuchuflito
{quote} STOPS wont save you at all... News have nothing to do with black swans... Keep postiions small:CORRECT
The probability of having your stops triggered is better than not having stops at all.
  • #64
  • Oct 19, 2016 10:47pm Oct 19, 2016 10:47pm
Quoting frtnsksmn
Tight stops during slippage, no way broker will fulfill them .. We have at least to examples in last two years, that stop-loss is useless when there is extraordinary move on market. One was SNB on 15th January 2015, when they removed the floor and second was few days ago when GBP/USD fell from 1.24 to 1.18 during just minutes in Asia trading hours where liquidity was small .. Stop-loss did not help at that times. Ask for example Sports Direct who had stop-losses on board and now they are hedged at 1.2000 and lower ...
That is why you don't trade during such important news releases which would have helped you avoid the SNB fiasco.

Anyway for GBPUSD was there any compelling reason to go long after BREXIT?
  • #65
  • Oct 19, 2016 10:51pm Oct 19, 2016 10:51pm
Quoting cuchuflito
{quote} Very inocent indeed....
Do you think those traders with such performance records are that gullible. Obviously they manage for such catastrophes as well.
  • #66
  • Oct 20, 2016 3:34am Oct 20, 2016 3:34am
Quoting limzy
{quote} That is why you don't trade during such important news releases which would have helped you avoid the SNB fiasco. Anyway for GBPUSD was there any compelling reason to go long after BREXIT?
There was no reason to go long GBPUSD after Brexit in long horizont. However in short term, if you want to play just for few days it makes sense to buy GBP .. Days after Brexit GBPUSD stand at 1,2900 and then in few days it returned to 1,3400
  • #67
  • Oct 20, 2016 5:18am Oct 20, 2016 5:18am
Consider this:
Say you start with 1000 U$.

Become PROFITABLE.
Overleverage, hit black swan, and end up owing your broker 10000 maybe 20000.
Too bad, you sell your car, pay your broker and look for a job.

Say youdon´t get hit in the beginning, you increase your capital to 10000......continue to overleverage....and start dreaming of a milllon..

BLACK SWAN HITS BIG TIME: you end up owing your broker 100000 maybe 200000...
Now you are ruined..

UNDERSTAND THE GRAVITY OF THE GAME?
  • #68
  • Oct 20, 2016 5:33am Oct 20, 2016 5:33am
Quoting cuchuflito
Consider this: Say you start with 1000 U$. Become PROFITABLE. Overleverage, hit black swan, and end up owing your broker 10000 maybe 20000. Too bad, you sell your car, pay your broker and look for a job. Say youdont get hit in the beginning, you increase your capital to 10000......continue to overleverage....and start dreaming of a milllon.. BLACK SWAN HITS BIG TIME: you end up owing your broker 100000 maybe 200000... Now you are...
True. The same could be said if a meteorite hits your home, ruined, smashed into 1001 pieces and if you're unlucky to be there, you're dead. Meteorites hit the world everyday.

So you have to consider the probabilities of such an event. What's the probability of being in a trade when a black swan hits? Tiny, fractions of 1% and maybe even less. And for ultra short term traders using 1m charts or even less the chances are probably a faction of a fraction of 1%.

No point using the Swiss as an example as that wasn't really a black swan. Pegs are there to be broken, in the previous 2-3 days to the break the market was hovering around 8 ticks above the 1.2000 level - you want to be long in that sort of scenario when you know the boys were getting ready to have a little tickle at 1.2000 to test the SNB.

As for Cable, wasn't a black swan for short term traders operating in the right time-zone, Europe.

Study your history about black swans, they can happen, but realise the odds are very slim (depending on your trading style) that you will be effected by one. But if people are still worried, trading is just not for you because in this business we are paid to accept risk.
Road To Wisdom? To err and err and err again, but less and less and less...
  • #69
  • Oct 20, 2016 6:24am Oct 20, 2016 6:24am
Quoting Calculus
{quote} True. The same could be said if a meteorite hits your home, ruined, smashed into 1001 pieces and if you're unlucky to be there, you're dead. Meteorites hit the world everyday. So you have to consider the probabilities of such an event. What's the probability of being in a trade when a black swan hits? Tiny, fractions of 1% and maybe even less. And for ultra short term traders using 1m charts or even less the chances are probably a faction of a fraction of 1%. No point using the Swiss as an example as that wasn't really a black swan. Pegs...
Well, with SNB EURCHF was few points above 1,2000 for long time a regarding voices from SNB just days before 15/1 I would call that event black swan .. a with cable, you never have open poisiton during night? forex is 24 hours market ..

I would say that odds of black swan are small, but they come once in a time (5-6 years) and it erases lot of retail clients money ..
  • #70
  • Oct 20, 2016 6:59am Oct 20, 2016 6:59am
Quoting Calculus
{quote} True. The same could be said if a meteorite hits your home, ruined, smashed into 1001 pieces and if you're unlucky to be there, you're dead. Meteorites hit the world everyday. So you have to consider the probabilities of such an event. What's the probability of being in a trade when a black swan hits? Tiny, fractions of 1% and maybe even less. And for ultra short term traders using 1m charts or even less the chances are probably a faction of a fraction of 1%. No point using the Swiss as an example as that wasn't really a black swan. Pegs...
What are the chances of beeing in a trade when a Black Swan occurs ?
In my case, 100%
I dont scalp. My strategy makes me to be in the trade allmost every time.
I dont mind if a black swan hits every 5 years. The problem is that it is becoming too often . 3 in 2 years is not meteorite ...
  • #71
  • Oct 20, 2016 7:13am Oct 20, 2016 7:13am
Quoting Zemanel
{quote} What are the chances of beeing in a trade when a Black Swan occurs ? In my case, 100% I dont scalp. My strategy makes me to be in the trade allmost every time. I dont mind if a black swan hits every 5 years. The problem is that it is becoming too often . 3 in 2 years is not meteorite ...
If you believe the risks of getting hit are 100% and the time-periods are now every 1-3 years then you only have one sensible action to take - retire from trading.

I still maintain the Swiss wasn't a black swan. Yes it was a massive massive move but a peg breaking with force is hardly something out of the blue. Most pegs either break or suddenly get withdrawn, it's all in the financial history which traders must study to understand this business.
Road To Wisdom? To err and err and err again, but less and less and less...
  • #72
  • Oct 20, 2016 7:15am Oct 20, 2016 7:15am
Quoting Zemanel
{quote} What are the chances of beeing in a trade when a Black Swan occurs ? In my case, 100% I dont scalp. My strategy makes me to be in the trade allmost every time.
In that case the company route is the safest option. Perhaps the guaranteed stops IG offers might be a solution too, but I didn't check the fine print nor did I talk to them - I'm out of the classical retail position sizes so personally I don't really care what they offer.
  • #73
  • Oct 20, 2016 7:16am Oct 20, 2016 7:16am
yea, what are the chances of you not having access to your money despite never having ever traded EUR/CHF.....guess the same chances of not having access to your funds on a count of the CEO was a crook, twice...lol....


and please don't tell me to diversify my accounts for Christ sakes...or even mention the words "segregated funds".....
Look Sharp/Trade Tight
  • #74
  • Oct 20, 2016 8:04am Oct 20, 2016 8:04am
Quoting PayTheLimit
yea, what are the chances of you not having access to your money despite never having ever traded EUR/CHF.....guess the same chances of not having access to your funds on a count of the CEO was a crook, twice...lol...
That's why it's so important to do some due diligence on your broker's finances as well as other investigations into who they are, their history, how long in business, WHERE are they located in the world and under which regulation.

That's why Interactive Brokers is such a great broker. Very strong balance sheet and look who holds most of the shares (Thomas Peterffy) and perhaps far more importantly what is his history - a long-time options market-market and you don't get to last long time in the options markets unless your anti-risk strategies are very very robust. I would bet a large amount of money that IB's risk management is the best in the brokerage business. If IB were to go down Peterffy would personally lose a billion $ so he's got a big incentive to make sure that never happens. But can they go down? Nobody is infallible in this business but they'd certainly be one of the last standing.

I have an alert on my PC that indicates if IB's share price goes below $15. The share price will probably be a good alert that something might be wrong with the firm and if it dips below $10 most of my cash would be wired out that same day, let the dust settle to find out what exactly is going on. I'd advise other IB account holders to do the same.
Road To Wisdom? To err and err and err again, but less and less and less...
  • #75
  • Oct 20, 2016 8:18am Oct 20, 2016 8:18am
glad my point got through finally, good luck...
Look Sharp/Trade Tight
  • #76
  • Oct 20, 2016 8:28am Oct 20, 2016 8:28am
I assume that scalpers point of view in this matter doesn really matter because their risk to a Black Event is allmost null .
The topic is only for the trend followers or daily time frame .
  • #77
  • Oct 20, 2016 8:32am Oct 20, 2016 8:32am
Quoting Zemanel
I assume that scalpers point of view in this matter doesn really matter because their risk to a Black Event is allmost null . The topic is only for the trend followers or daily time frame .
Yes, 100% correct there. You've got some people here, myself including say there really isn't that much to worry about. However, others are on much higher timeframes and then the risks are far more. For daily traders the risks of a 10 point move in Cable is not that bad considering they'll probably be using a 50-300 tick stop. But for 30/60m traders the risks go far higher.

For those on that sort of time period consider going much lower, markets are fractal so if you have good trading ideas/strategies you should be able to transport them down to much lower timeframes. One thing I always tell people about the shorter timeframes is they're a never ending conveyor belt of good setups.
Road To Wisdom? To err and err and err again, but less and less and less...
  • #78
  • Oct 20, 2016 8:37am Oct 20, 2016 8:37am
Quoting Calculus
{quote} True. The same could be said if a meteorite hits your home, ruined, smashed into 1001 pieces and if you're unlucky to be there, you're dead. Meteorites hit the world everyday. So you have to consider the probabilities of such an event. What's the probability of being in a trade when a black swan hits? Tiny, fractions of 1% and maybe even less. And for ultra short term traders using 1m charts or even less the chances are probably a faction of a fraction of 1%. No point using the Swiss as an example as that wasn't really a black swan. Pegs...

Sorry Calculus but I don´t agree with your "meteorite risk comparisson".
3 Meltdowns (I avoided the term black swan)..in 2 years...involving majours: Cable, Swissy and Euro....which we all trade..
I´m profitable, besides, I run my own business, own a house, I´m not rich but have no debts...sound and safe finances...the same aplies for my trading.

Each one´s responsability in the end...good luck, truly to all...
  • #79
  • Oct 20, 2016 8:41am Oct 20, 2016 8:41am
Quoting Calculus
{quote} Yes, 100% correct there. You've got some people here, myself including say there really isn't that much to worry about. However, others are on much higher timeframes and then the risks are far more. For daily traders the risks of a 10 point move in Cable is not that bad considering they'll probably be using a 50-300 tick stop. But for 30/60m traders the risks go far higher. For those on that sort of time period consider going much lower, markets are fractal so if you have good trading ideas/strategies you should be able to transport them...
But on lower time frames the pips movements are also lower. Then you have to increase positions and at the same time increasing risk
  • #80
  • Oct 20, 2016 8:55am Oct 20, 2016 8:55am
Quoting Zemanel
{quote} But on lower time frames the pips movements are also lower. Then you have to increase positions and at the same time increasing risk
Going lower solves in my opinion the number one reason most traders struggle - their profits are not much larger than their losses.

This is because the nastiest stat/equation in trading.

Risk 5 and to make (say 3:1) you've got to make 15.

Double the risk to 10 and the profit potential has to double as well to 30 (to make 3:1 just using that as an example).

Increase the stop to 50 ticks and the profit needed is now 150 ticks (some crosses struggle to do that in a week).

Increase that to 100 and it's a 300 ticks.

So the more the stop increases the harder it's going to be to make good risk-reward. Conversely the lower it is the easier it's going to be to get 3:1, 4:1 maybe even a few 10:1's thrown in every now and then. Try getting 10:1 on the 60m, very hard indeed.

So to really have a good chance to make more than you lose, take note of this nasty bit of maths that's working against us all the time and try to do something about it. The easiest way, is to go shorter timeframes and work out where on the chart you can use tight stops - those areas are there, you just have to find out where they are and perhaps more importantly what happened in the preceding 1-10 bars and that's always the major clue. Then throw in the conveyor belt of good setups that just keeps on coming and you have everything you need to have the best chance of making in this game, especially if you have a small account (less than $10k if you're part time and less than $100k if you're full time).
Road To Wisdom? To err and err and err again, but less and less and less...
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