A black swan is an event or occurrence that deviates beyond what is normally expected of a situation and is extremely difficult to predict; Black swan events are typically random and are unexpected.
2016 is approaching its end; from the past 11 months there’re loads of black swan events and below are top 4 that are deemed gigantic and dramatic, to a New Zealand based FX trader.
23 Jun 2016 – Brexit date
Before this date NZDJPY was as high as 75.00 but soon after the vote results came out the FX pairs plunged as low as 70.00; ie 7.14% mega free fall. It took another 1-2 days to fully recover.
09 Nov 2016 – The US Presidential Election
Before noon on 09 November 2016 New Zealand time NZDJPY shot months high to 77.87; and it was thought that Clinton was getting ahead and should be the winner. While that’s also my thought and I was pretty confident that the 4x NZDJPY Longs should hit the TPs at 78.00 in no time…then shit happened and around noon NZDJPY free-fell to 77.00, 75.80, …, 73.90!!!
After Trump declared victory NZDJPY rebounded and recovered all previous losing ground up to 77.91 high on 10 November 2016 8am. As per my record I’ve made very handsome profits 3 times; the first round up till 77.87 (Long); the next free-fell from 77.81 to 74.70 (Short); and the last one from 74.20 to 77.80 (Long).
04 Dec 2016 – Italy Referendum
Before this date the market has already priced in the likely “rejection” and EUR has been shorted heavily ever since. I recalled that NZDEUR was as high as 0.6695 close on 03 Dec 16.
On Monday just before noon, NZDEUR continued its climb till 0.6763 at where one of my long had a TP; then there came a drama, it free fell to as low as 0.6685 where one of my short TP. This is a 1.17% fall within an hour. Euro didn’t stop here, its continued this fall overnight as low as 0.6655 and it seemed supported at 0.6625 – where my another two TPs were set. It’s now back up at 0.6636 (06 Dec 2016, 12.05 NZT).
05 Dec 16 – NZ Prime Minister resigns
Perhaps this is the best surprise to all for the day. It coincided with the Italy Referendum result around noon NZT and this more or less weighed further on already falling NZDEUR. A friend of mine asked me later that if I’ve taken advantage of this surprise, and to his surprise I said no. I did take handsome profits from the NZDEUR and NZDJPY shorts, however they were set as a hedge long before any of these surprises became visible on the radar.
What am I trying to say here? Why do I list these 4 black swans? Am I bragging?
The reason I write this blog along with these real life examples is to remind myself as well as you guys of the importance of preparation. And preparation beats prediction. How’s that? Take any examples listed above, you might have already read or heard from the news, polls or market surveys before any events that which option was more favourable, or which candidate was ahead in poll blah-blah-blah, but when it comes to the very moment the results were always completely opposite. If one’s investing or trading decision (predictions) was entirely made on these “statistics” then very likely losses were the final results.
Losses are the worst thing investors or traders want. Bad surprises are the last thing the markets want. We cannot always predict right and achieve desirable results, however we can always prepare in case of worst scenario. This is why we pay insurance for our health care, for our home or real estate, for our automobile or some big ticket items.
Same principles applied to any investments or trades, no one can get their predictions right 3 times in a row, regardless of their specialties, job titles, qualifications, skill set. Back to the above listed 4 examples, preparation here means exit plan, or plan B. All my FX trades on the dates in question were either 50% or 100% hedged. This is Preparation. And I can ensure you that I made handsome profits from these events regardless of the direction of movements – up or down. In other words, I do not need prediction or forecast, nor give a damn for a rough price level; I just need hedging in place so that I can profit no matter what.
If those economists or finance commentators got their predictions right and they took action, they’d have become billionaires long time ago. Then why the heck they were still there making and selling predictions??
Preparation beats Prediction!!!
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