Attachments: Black Swan - Are you prepared?

Black Swan - Are you prepared?

#101
Oct 29, 2016 1:42pm Oct 29, 2016 1:42pm

Momba
| Joined Mar 2016 | Status: Trader | 17 Posts

It's one thing to be left with $0 in a trading account after a big event, another thing risking a negative balance. A big negative balance... ECN brokers can not guarantee stops or margin calls during those events. I don't want to be left homeless because of my hobby trading.

Any comments on this?

#102
Oct 29, 2016 7:55pm Oct 29, 2016 7:55pm

wentao
| Joined Oct 2016 | Status: Trader | 47 Posts

Quoting Zemanel

Disliked

Movements of 700/1000 pips in a couple of hours or even minutes are becoming more and more comon. Its impossible to have great profit while avoiding these moments. The only way is to have the luck to be out of the market when these Swans decide to fly. How do you guys do it ?

Ignored

i did some statistics, most black swan's direction follows primary trend, the rest result from distorted market like Swisse CHF. consider those two carefully, u can avoid most black swan

may trend be with you

#103
Oct 31, 2016 7:19am Oct 31, 2016 7:19am

frtnsksmn
| Joined Oct 2016 | Status: Trader | 25 Posts

Quoting datdle

Disliked

I have only 1 weapon agains black swan: 1. Use low leverage. I recommend using for all of your life trading: 1:10 or maximum 1:30 2. Not using Stop loss. Yes! Not using stop loss. Please cut order by manually. You still there in tomorrow and the market is the same there. Why need so hurry ?

Ignored

I agree with weapon number 1 - low leverage is absolutely crucial. 1:10 is max for me .. 1:5 gives much better sleep (and i know that you can not earn so much as with 1:30, but i do not to be millionare in one weekň

the second about not using stop-loss. Well and what if the market will not be the same tomorrow?

#104
Oct 31, 2016 9:01am Oct 31, 2016 9:01am

9jatrader
Joined Mar 2016 | Status: Trader | 6,327 Posts

Quoting datdle

Disliked

I have only 1 weapon agains black swan: 1. Use low leverage. I recommend using for all of your life trading: 1:10 or maximum 1:30 2. Not using Stop loss. Yes! Not using stop loss. Please cut order by manually. You still there in tomorrow and the market is the same there. Why need so hurry ?

Ignored

Great two points. I should add another point - Take one position at a time and maximize hold it, instead of trading many pairs. Trading many pairs, especially correlated pairs, account will catch fire during black swan.

Make all mistakes in demo and rain in pips in live account

9jatrader All Time Return: 11.1%

#105
Oct 31, 2016 9:22am Oct 31, 2016 9:22am

Zemanel
| Joined Jan 2016 | Status: Trader | 39 Posts

Quoting frtnsksmn

Disliked

{quote} I agree with weapon number 1 - low leverage is absolutely crucial. 1:10 is max for me .. 1:5 gives much better sleep (and i know that you can not earn so much as with 1:30, but i do not to be millionare in one weekň the second about not using stop-loss. Well and what if the market will not be the same tomorrow?

Ignored

I see that there is a miss-understanding regarding leverage...
When you say leverage you mean account leverage of your account for margin calculation purpose or your actual leverage investement ?
I question this because high leverage account is actual benefit to the trader.
The kinf of leverage that real matters is your investement leverage.
Trading a 1:1000000000000 leverage account is much more benefit to you than a 1:10

Quoting 9jatrader

Disliked

{quote} Great two points. I should add another point - Take one position at a time and maximize hold it, instead of trading many pairs. Trading many pairs, especially correlated pairs, account will catch fire during black swan.

Ignored

I dont agree . Diversifying will permit that when a black swan hits , there is a possibility that you are in diferent stages of your plan in diferent pairs.

#106
Nov 4, 2016 11:57am Nov 4, 2016 11:57am

sam_forex
| Joined Dec 2010 | Status: Trader | 6 Posts

Quoting FXSayWhat

Disliked

{quote}When it comes to FX black swan events, there are two types we often encounter. 1 is manageable, and 1 is nearly impossible to mange. It's important to have them categrized and know which situation you are dealing with by the time you get caught. the one that moves fairly small (up or down within 100 pips in less than maybe 5 minutes) typical example, is somewhat management with all these sl, small risk and stay flat approaches you have discussed above. I think we have already established this understanding here the ones that moves anywhere...

Ignored

Very well put. Does the Type 2 Black Swan Occurs in future markets (E-minis) also? I believe stops are guaranteed by Futures Brokers unlike Forex brokers. I am scared of these Blackswan stuff in Forex and would like to switch to Futures.

#107
Nov 6, 2016 5:16am Nov 6, 2016 5:16am

bryce.trade
| Joined Feb 2016 | Status: Trader | 4 Posts

Quoting limzy

Disliked

1. Use stops 2. Keep positions small 3. Stay out of the market during high impact news releases. 4. Trade during liquid market conditions

Ignored

I agree with points one and two. Stops are an absolute must. Trading only 1-2% of your account is important too. Point three is something I mostly agree with, but I think that it's okay to be in the market during high impact news if your trade is properly entered and your setup calls for it. Point four is something I mostly agree with too.

Overall, I think this is solid advice and I've got the scars to back my opinion.

#108
Nov 6, 2016 5:18am Nov 6, 2016 5:18am

bryce.trade
| Joined Feb 2016 | Status: Trader | 4 Posts

Quoting wentao

Disliked

{quote} i did some statistics, most black swan's direction follows primary trend, the rest result from distorted market like Swisse CHF. consider those two carefully, u can avoid most black swan

Ignored

Yeah, I agree. I think that if you're trading in the direction of the higher timeframe trend then a black swan might not be so bad - but, only if you're properly managing your risk.

#109
Nov 27, 2016 4:08pm Nov 27, 2016 4:08pm

beastwork
| Joined Sep 2014 | Status: Trader | 124 Posts

Since black swans DO happen, and they have the potential to wipe out an account should we just leverage, and try to get rich before it happens? I disagree.

Do you all think its wise to:

1) First define a black swan (i.e. a 2,000 pip move).
2) Determine how much you are willing to lose in a black swan event (30% of equity).
3) Develop a trading strategy based on those parameters; Such that your number of open trades and the size of those trades fits into a 30% black swan loss strategy?

I know that this will eliminate the 4x single year gains, but isn't this a more practical approach to trading? I find it odd that people are willing to expose years of hard earned gains to a 10 minute market crash.

#110
Nov 28, 2016 5:25am Nov 28, 2016 5:25am

frtnsksmn
| Joined Oct 2016 | Status: Trader | 25 Posts

Quoting beastwork

Disliked

Since black swans DO happen, and they have the potential to wipe out an account should we just leverage, and try to get rich before it happens? I disagree. Do you all think its wise to: 1) First define a black swan (i.e. a 2,000 pip move). 2) Determine how much you are willing to lose in a black swan event (30% of equity). 3) Develop a trading strategy based on those parameters; Such that your number of open trades and the size of those trades fits into a 30% black swan loss strategy? I know that this will eliminate the 4x single year gains, but...

Ignored

You are almost right. I see one problem in your assumption. Definition of black swan is really hard. It is move which is greater than 2000 pips, you can not limit that move to exact number. And that is the problem, how you can be safe from unpredictable amount of lose. You can not put aside 30 percent of your collateral for it, because it could be more

#111
Nov 28, 2016 7:07am Nov 28, 2016 7:07am

beastwork
| Joined Sep 2014 | Status: Trader | 124 Posts

My assumptions were not meant to be hard and fast rules. They are simply parameters to build a risk profile. Replace 2000 pips with 5000 pips if you like. You may also decide to replace the 30% with 60%. The point is we need to define these parameters so that we at least have some estimate of our exposure. Sure when the actual black swan visits it may be larger than you anticipated, but instead of being negative equity you experience only a 60% loss.

Without doing a similar exercise we're just gambling. My belief is that most traders get eaten up by black swans simply because they have not taken ANY precautions against it...This feels like a good start. This approach WILL decrease your returns, but so does having your entire account wiped out.

#112
Nov 28, 2016 7:37am Nov 28, 2016 7:37am

FXCoalface
| Joined Sep 2016 | Status: Trader | 15 Posts

Quoting Momba

Disliked

It's one thing to be left with $0 in a trading account after a big event, another thing risking a negative balance. A big negative balance... ECN brokers can not guarantee stops or margin calls during those events. I don't want to be left homeless because of my hobby trading. Any comments on this?

Ignored

Hi Momba

Find a good FX broker with a guaranteed negative protection balance policy - for example FXPro

Then if your capital is say $1k or even $5OK and your are leveraged at 200:1 or even higher and your 10 pip or even 50 pip stop gets gapped and the black swan moves a pair 2000 pips in less than an hour - the most you can lose is your capital balance - and no more.

I have heard of guys with £20k + account suffer and owe £50 k or even more due to a Black swan and the brokers try and pursue you via the courts etc etc.

Dont get caught out - get negative balance protection and keep your capital low - withdraw your profits regular and then you dont have to worry - you will need leverage with lower capital - but thats no problem when you are experienced and know what you are doing etc etc.

I would far sooner leverage a $5k account and aim for 30% per month gains - than have a $50k account with no or low leverage and a target of only 30% per annum - and with no negative protection - its an accident awaiting to happen

Good Trading

FX Coalface

#113
Nov 28, 2016 7:39am Nov 28, 2016 7:39am

Calculus
Joined Apr 2011 | Status: Trader | 583 Posts

Why bother trading if you're worried about black swans? In order to completely nullify a freak occurrence of a black swan you will have to trade so small it's not even worth trading, ie on a good year you might make 2% if you're lucky.

In fact, why both living if you're scared of black swans because there's more chance of you getting killed in a freak accident today than getting mullahed via a black swan in the markets.

Yes, they happen but so infrequently they're not even worth worrying about. As others have said here, don't confuse a black swan with a big move like the Swiss or Cable of a few months back. They weren't black swans as the moves hardly came out of nowhere. Currency pegs more often than not break, either the market breaks them a la Soros/Lewis or the government pulls the plug. For Cable, the currency had a major earthquake so expect more tremors and aftershocks, both ways. And that's still the case with Sterling, although like an earthquake the aftershocks should be less and less powerful, but still, a 5-10 cent move tonight shouldn't raise any eyebrows.

So go look at the 60m, 240m, day chart of Cable just before the big move and tell me if you wanted to be long? Only a fool would have been but that's not to say you should have been short.

Same with Swiss, whoever was long that market when it was less than 10 ticks off the peg level and had been moving steadily lower for the past year needed their head examined. As it was, they got their heads handed to them. Again, the chart didn't indicate short, as who knows, the SNB could have come in and blown every short out of the market with an instant bid 50-100 ticks higher than the last trade.

So there you go, 2 of the biggest moves in the last 2 years and nobody should have got caught. Therefore the best big move/black swan avoidance strategy is to rely on common sense and not try to pick bottoms (or tops) in markets that look anything but bullish. I don't have the intraday charts available for the Soros move but again looking at the daily it said only one thing - don't be long unless you have a death wish. I mean, what are people in this game for, to make money or be idiots? If it's to make money, go find a market where it's easier to make money, one that's flowing, one with no heavy sword of Damocles hanging over it.

Road To Wisdom? To err and err and err again, but less and less and less...

#114
Nov 28, 2016 11:29am Nov 28, 2016 11:29am

Momba
| Joined Mar 2016 | Status: Trader | 17 Posts

Quoting FXCoalface

Disliked

{quote} Hi Momba Find a good FX broker with a guaranteed negative protection balance policy - for example FXPro Then if your capital is say $1k or even $5OK and your are leveraged at 200:1 or even higher and your 10 pip or even 50 pip stop gets gapped and the black swan moves a pair 2000 pips in less than an hour - the most you can lose is your capital balance - and no more. I have heard of guys with 20k + account suffer and owe 50 k or even more due to a Black swan and the brokers try and pursue you via the courts etc etc. Dont get caught out -...

Ignored

Hi FXCoalface,

Thanks for your reply, makes much sense. FXPro offers guaranteed negative balance protection, I like that a lot. But the only thing that bothers me is that they may deal against their customers since they are not an ECN/STP broker. But then again, are there any real true ECN/STP brokers out there for us retail traders buying/selling mini lots and lots...

#115
Nov 28, 2016 12:02pm Nov 28, 2016 12:02pm

Calculus
Joined Apr 2011 | Status: Trader | 583 Posts

I agree, that using a negative balance protection broker is the way to go if you're worried about the potential of a black swan. But as Momba intelligently points out - they will probably double deal you.

Always remember that in the game of trading whenever you're offered an advantage it always comes with a disadvantage attached. Conversely, whenever you have a disadvantage it always comes with an advantage. Two sides to the same coin, always.

Road To Wisdom? To err and err and err again, but less and less and less...

#116
Nov 28, 2016 8:06pm Nov 28, 2016 8:06pm

beastwork
| Joined Sep 2014 | Status: Trader | 124 Posts

Quoting Calculus

Disliked

Why bother trading if you're worried about black swans?

Ignored

Why bother? What's the point in trading if you're just going to give it all back when the market gets a little crazy. We have to take precautions. I understand we have to take on risk, but too much risk is a recipe for disaster. What kind of moves are you prepared to absorb?

Quote

Disliked

So there you go, 2 of the biggest moves in the last 2 years and nobody should have got caught.

Help me understand. Your strategy is hoping that you can avoid or be on the right side of big market swings? Even the big boys with legions of analysts and PhDs lost money in the events that you referenced. I'm not going to pretend to be better equipped than the institutions when it comes to predicting moves. What I can do is control my trade size and plug away.

Again what size moves are you able to absorb (when you happen to be on the wrong side

) without losing more than 30% of your account. I highly doubt that your risk management is simply "being right." If it is you'll surely bust at some point and time. Please tell us why I'm wrong so we all can learn.

#117
Edited 6:34am Nov 29, 2016 2:40am | Edited 6:34am

Calculus
Joined Apr 2011 | Status: Trader | 583 Posts

Quoting beastwork

Disliked

{quote} Why bother? What's the point in trading if you're just going to give it all back when the market gets a little crazy. We have to take precautions. I understand we have to take on risk, but too much risk is a recipe for disaster. What kind of moves are you prepared to absorb? {quote} Help me understand. Your strategy is hoping that you can avoid or be on the right side of big market swings? Even the big boys with legions of analysts and PhDs lost money in the events that you referenced. I'm not going to pretend to be better equipped than...

Ignored

1. What's the point in trading if you're scared of losing much of your money on an event which rarely by its definition happens? This is a thread about black swans not fake black swans that people so often scream whenever there's a big move that more often than not is telegraphed to the trading community if they'e paying attention. If you don't think black swans rarely happen, please name me 1 over the last 10 years because I can't. Please don't say the Swiss or Cable as they were about as far from a black swan as one could get.

2. Trading is a game where we're paid to assume risk, if people run from risk all the time like a child is scared of the dark, they won't get paid. It is a very simple equation.

3. I am prepared to assume ALL the risk of a black swan move because I am a trader, not a pussy. If a 5000-1 shot hits me out of the blue, it won't be nice, but at the same time it probably won't happen as it relates to point 1.

4. Forget about the institutions, people give them far too much credit, they generally know about as much as us, they are far from being superhuman or masters of their universe and they certainly don't have any better information than us when it comes to black swans because by definition a black swan is a move that comes out of nowhere. It is totally unpredictable.

5. My strategy is not hoping that I will avoid big moves (although at the same time I do hope as I don't have a death wish). My point is simple, if you look at both of those 2 big moves only a moron would have been long assuming he's trading short term. Of course, there were longer term players who would have been long in Cable but a longer term player will use a larger stop and the larger a stop one uses the less of a problem a big moves poses. And if they did lose big then welcome to the world of trading where bad things can and do happen. If people don't like the risk of having bad things happen to them and their money, trading is not for them because nobody can eliminate all the risks. For short term traders it's the reverse, smaller stops mean big moves can really hurt but as I've said before, only a real moron trading short term would have been long either the Swiss or Cable when those moves happened. The fact they lost large is the proof they are morons.

Many traders are therefore far too worried about getting hurt by big moves that telegraph themselves to the world before they might happen. I am not saying the market tells everyone that a big move will happen, only the potential for one is there.

6. If I was the boss of a bulge bracket firm and my analysts and PhDs were long either of those 2 markets (trading shorter term) they would not have a job any more as they would have proved to me they know nothing about trading. This is especially the case with the Swiss. In fact if an analyst had proposed to me before the SNB move that he thought we should be long Swiss I would have fired him at that moment. The reason would have been simple, a) the current chart, and b) he just proved he hadn't studied their financial history and how can you call yourself an analyst without studying financial history?

7. I am able to absorb any move, if you're not then you're fooling yourself about this game. If it happens, so be it, it won't be nice but I will dust myself down, remind myself that this is the game I've chosen to play, and then got on with playing it again.

In regards to my post above, the point I was making was very simple - if you follow the intraday charts it's not hard to realise there's a tiny tiny chance one will get caught up on the wrong side of a move like like the Swiss or Cable as these moves to NOT COME OUT OF NOWHERE like a black swan move does. Here are the 20m, 60m and 240m Cable charts just before the big move, look at them, what jumps out because what jumps out at me is very simple - DO NOT BE LONG. That is my point, it's not about 'hoping' it's about common sense in relation to following the market and that always goes a long way in the game of trading.