how to protect your account from huge catastrophic events.

[MarkBrown]

i think there is a bigger threat to your trading account than not having stops.

that is having stops that don't allow for typical range of movement.

knocking you out of a trade and the going on to make a profit.

thats why i don't use stops - i am always in.

mb

also 911 i was short the sp but i was long bonds. i lost 33% in the sp but made 24% in the bonds. less than 60 days after the market opened back up i was back in the account where i was pre 911 with profits.

if you trade financial's you need to trade debt.

 

[hilojack]

Quote from Cutten:

The overnight risk is much bigger because you can't react to it. Even on days like 9/11, the market traded fairly continuously most of the time, so you could always get out.

The most vicious intraday move I saw was the Jan 2001 surprise Fed rate cut. If you were short a truckload of tech, you probably took about a 20% haircut before you could get out on any size. But then, everyone knew tech was volatile at the time, so only a pretty risk-loving trader would be short 100% tech at that point.

A conservative trader, focused on avoiding blowups, might have lost 5-10% there. Painful but survivable. 9/11 was actually milder - I was long coming into it, and there was plenty of time to get out and even get short (as long as you had access to European and/or pre-open US markets). The market traded pretty continuously 99% of the time.

Now contrast this to something like WWI. The US market got *creamed* overnight by that news. Overnight is definitely a bigger risk.

I hear what you're saying, I was wondering more about what these day-trade only pro shops do. Because they almost all trade equities alone, the positive correlation must put them at a MUCH higher risk than someone with a balanced portfolio.

 

[hilojack]

Quote from MarkBrown:

i think there is a bigger threat to your trading account than not having stops.

that is having stops that don't allow for typical range of movement.

knocking you out of a trade and the going on to make a profit.

thats why i don't use stops - i am always in.

mb

also 911 i was short the sp but i was long bonds. i lost 33% in the sp but made 24% in the bonds. less than 60 days after the market opened back up i was back in the account where i was pre 911 with profits.

if you trade financial's you need to trade debt.

How did u lose money short the SP?

 

[PanPizza]

Put your money in 5 year CDs.

 

[MarkBrown]

Quote from hilojack:

How did u lose money short the SP?

sorry i was long the sp and long bonds. i had a ratio of 2 us per sp. i still have screen shots of my charts that day. somewhere.

mb

 

[jack hershey]

Quote from hilojack:

How did u lose money short the SP?

Including typos and MB's portfolio balance, he spent 60 days digging out of his 911 hole to neutral and then he wrote off the 60 days as time that didn't count in his BP.

In general, a person has to look at trading from the viewpoint of what the capital involved means in terms of permanent effects.

60 days lost in any BP is roughly nothing.

Anyone should feel free to take a break of any length he desires and spend anything he wants.

Trader earning power is limitless, roughly speaking and this is coupled with being able to profit from catastrophy as well.

Any trader who doesn't have a BP nor a trading plan is only going to be trading temporarily anyway and he will likely be somewhere else for his next catastrophy.

It's the same for vendors in the trading industry. they come and go regardless of catastrophies.

Say a catastrophy is a set back in anyone's account of five to ten daily ranges as a gap from before to after. For MB it was 60 days trading equivalent. For others, it is just a glitch based on their money velocity of trading.

Stops don't work in one sided markets except to say that you will be sidelined with a more than the stop set back.

Even looking at the markets on 911, you could see the "effect" before you would have turned on a TV to see the second plane hit the second tower. You could see the "effect" before the smoke appeared in first reports. You traded the "effect" or you took the shot like MB said he did. Then he did the work out for 60 days. From 8:20 to 9:30 EST time, Chicago was running as pre open and observers and traders of Chicago action were dealing. It was simply over, meaning a catastrophy was in effect, right then and there.

What you have positions in right now is just the way it is. a catastrophy hits and you get consequences. Slice your equity curve plan vertically and get a blank sheet out and splice it to the curve and do the work out. Glue the equity curve plan to the sheet when you complete the work out and carry on.

 

[MarkBrown]

trades based off the free and fully disclosed oddball system published by me in december 2000 active trader magazine.

mb

 

[oTzt]

Quote from drsteph:

I think the point about holding the position overnight is reasonable, but don't overstate what the real overnight risk is. It isn't 20% for an index; it may be 20 % for an individual volatile stock.

It may be much more (AAPL, closed @ 28.75 on sep, 2000, 28 and re opened sep, 2000, 29 @ 12.87
I'm so pleased I was not long AAPL that day...)

ONS,
If you're not a US citizen, and you are outside the US, and trade stocks with high volume, a solution could be to use CFDs as a vehicle, with GSO (guaranteed stop loss) to protect you positions.

The counter part is that you won't be able to place a GSO @ 2% of your entry price. I think that the minimum distance a broker will accept is between 3 and 5%.

The counterpart of this counterpart(...) is that most brokers will limit the deposit needed to open a position to this amount (as long as it represents your maximum loss on a given trade), which means that they give you a 33% leverage.

And obviously in such a case your 'real risk', as a sytematic trader, is no longer 3 or 5%, but the risk to chain several consecutive losses before a winning trade.

Olivier.
O.