FX Short Term Trading - Black Swan Protection

R

rysa2011

Greetings,

I've been solely trading FX for a few years now and after a few hard knocks I've settled into a daytrading strategy best suited for my trading style that has yielded a respectable level of success.

I folllow a comprehensive and disciplined trading plan that includes money management, trade entry/exit rules, etc... I primarily trade the EUR/USD 08:00-1200 EST. All trades have automatic limit/stop attached orders. Normally leveraged at 10:1. Total time exposed to the market on any given trading day is usually very short. Trading with IB.

One of the areas I haven't focused on yet in a Black Swan contingency plan. Do any retail FX daytraders here take any precautions against such events? If so, what strategies do you use?

Thanks
 
Quote from rysa2011:

Greetings,

I've been solely trading FX for a few years now and after a few hard knocks I've settled into a daytrading strategy best suited for my trading style that has yielded a respectable level of success.

I folllow a comprehensive and disciplined trading plan that includes money management, trade entry/exit rules, etc... I primarily trade the EUR/USD 08:00-1200 EST. All trades have automatic limit/stop attached orders. Normally leveraged at 10:1. Total time exposed to the market on any given trading day is usually very short. Trading with IB.

One of the areas I haven't focused on yet in a Black Swan contingency plan. Do any retail FX daytraders here take any precautions against such events? If so, what strategies do you use?

Thanks
More...

In my opinion, because a Black Swan Event is a surprising unexpected event, you can't plan for it. The cost of always over hedging for something that by definition is unexpected, is not worth the cost. Following proper risk monitoring on your trading will have to be enough.
 
A lot of hedge funds, banks, etc who have blown up would have agreed that it doesn't make sense to allow for a Black Swan, some would even have agreed after blowing up for a second time...............
 
rmorse said it all


one black swan event was 911, the destruction of the NY Twin Towers on Sep 11/01
the spot eurusd continued to trade but currency futures were closed for a week along
with other markets, a gap down on the $ re-open but not a lot and new trends began in
the opposite directions afterwards. much larger drops occurred with the S&P 500 and
DJIA and while the Dow didn't quite 'close' the gap the 500 did

a smaller black swan that saw the euro open down 120 ? pips was the capture of
Saddam Hussein which occurred on a Saturday; FXCM announced they'd honored all
Stops and the price recovered anyway during the Sun/Mon session

central banks' actions in the markets usually to buy their currency generates large
price swings even when they announce they'll be doing them, but gives the chance
to be out of the market, jpy has seen some large moves

if Greece or Eire were to suddenly announce they were leaving the EU or dropping the
euro - essentially defaulting, that would have a major impact on the euro, although
I think the euro might already be in a downtrend were such a thing to happen
 
Hey Wallace, was spot EUR/USD 'orderly' immediately after the Twin Towers attack? Dunno if there's any chart provider with 5m intraday charts that far back...for free anyway.
 
Quote from rmorse:

In my opinion, because a Black Swan Event is a surprising unexpected event, you can't plan for it. The cost of always over hedging for something that by definition is unexpected, is not worth the cost. Following proper risk monitoring on your trading will have to be enough.
More...

basically, you agree to be wiped out by a Black Swan. do you hope to get rich and quit while ahead before a Swan hits?
 
Quote from shortie:

basically, you agree to be wiped out by a Black Swan. do you hope to get rich and quit while ahead before a Swan hits?
More...

I don't trade anymore. But when I did, I watched my risk all the time. However, you can only hedge the events that might happen. You can't hedge events that you not only can't plan for, but can't imagine. It's a waste of time and money. What are your suggestions?
 
Quote from rmorse:

I don't trade anymore. But when I did, I watched my risk all the time. However, you can only hedge the events that might happen. You can't hedge events that you not only can't plan for, but can't imagine. It's a waste of time and money. What are your suggestions?
More...

the thread is in FX and i can't comment on FX, but for indexes I would say that one's account should be able to tolerate at least, let's say, -20% and +7% Gaps at least once during his trading career.
 
I don't think anyone could trade long, directional, intraday if they were to tolerate a -20% gap in ES, NQ, TF. A literal gap, no liquidity. Spreaded maybe but not 1 instrument.
 
Trade size that fits for your bank and as vol increases cut your size. Yeah, nuclear war may take you out but lesser black swans should be opportunities not problems if you are using the best of all hedges -- minimum greed.
 
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