In the face of sudden black swans, how should we deal with the risks in transactions?

We know that black swan events (that is, major unexpected events) will cause violent market fluctuations. It is certainly a risk event for the wrong party, but it is a huge profit event for the right party. So, is there any way to catch this kind of black swan event in advance or calmly deal with it afterwards?

In order to seek this method, I sorted out 20 black swan events around the world since the 1950s, hoping to find out the rules. These 20 black swan events are shown in the table below:

​By analyzing the reactions of various assets after the black swan event, I found that the black swan event can be attributed to six types:

First, it is nested under the larger fundamentals so that it is ignored by the market.

Such as "Gold Crisis", "Watergate Incident", "Prism Gate Incident" and so on. These events may be isolated, or they may be the product of some macro context, which is also unexpected by the market, but is ignored because it is nested in some larger macro context. Such emergencies generally do not trigger liquidity risks, so even if they occur during an economic downturn, they will not have a greater impact on fundamentals (but long-term impacts, such as the gold crisis, cannot be ruled out).

Second, the market fluctuated greatly, but it did not lead to a substantial and continuous decline in risk assets.

For example, the Brexit referendum (which also has a long-term impact on the UK, but the short-term impact does not last), the 2016 US election, etc. Such events only exceed market expectations and may have long-term effects, but they will not affect the economic fundamentals of the subsequent period. This sudden event does not affect the operating trend of various assets, but it will intensify market volatility before and after the event, and may also bring trading buying points for many assets.

Third, unexpected events pushed risky assets to fall sharply, but the adjustment time was relatively short.

For example, various short-term geopolitical risks, the Korean War; another example is the 1987 stock market crash, the 2018 Q4 US stock market crash, etc.

Such events only affect short-term market risk appetite, or cause periodic adjustments due to the overvaluation of certain types of assets, and such events will not trigger changes in economic fundamentals, and often occur during economic recovery or even overheating. Once the risk event is over, or the monetary policy is relaxed, the impact of the situation on the market will end.

​Fourth , unexpected events trigger the continuous adjustment of risk assets, and even bring about trend effects.

Such events often occur in the late cycle or recession of the economy, triggering the economy to switch from the late cycle to the recession or exacerbating the degree of economic recession. Such as the Vietnam War, the oil crisis, and the current impact of the epidemic.

Fifth, unexpected events have induced a liquidity crisis, which may trigger a continuous adjustment of risky assets.

For example, the bankruptcy of Long-Term Capital, the bankruptcy of Lehman, and the failure of Bridgewater’s riskparity strategy are actually the results of the Asian financial crisis, the subprime mortgage crisis, the epidemic, and the impact of ultra-low oil prices. However, due to the size of the financial institutions or the financial products they created Larger, thus triggering market liquidity risk. Generally speaking, such incidents often occur at the "critical point where a certain transaction model is born in a certain economic and financial environment, and the model is continuously enlarged, and the dividends of the financial environment are continuously swallowed." Taking the Riskparity strategy as an example, the QE-driven fall in risk-free interest rates and the rise in financial asset valuations are important backgrounds for its birth and development. At present, the risk-free interest rate has fallen to an extreme level, and the double killing of stocks and bonds in the same direction has invalidated the strategy and triggered a crisis. Market Liquidity Risk.

Sixth, key long-term turning point events.

For example, "the US dollar was decoupled from gold on August 15, 1971", the oil crisis, the "Plaza Agreement", the 9/11 incident, the "European debt crisis", and the "Brexit referendum". But the impact of such events on asset prices varies greatly, depending on which countries are beneficial or harmful, or whether they are beneficial or harmful to the world.

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With such a division, the conclusion can be seen clearly: the black swan event itself is only a disturbance factor, because these unexpected events themselves will not cause a reversal impact on the original commodity trend. However, in this process, the amplitude of various assets will inevitably intensify, and its impact on the market even exceeds the limit of our daily consciousness. Under extreme panic, the market will quickly sell risky assets and form a risk aversion mood, but it will soon return to rationality. Buy low-risk assets.

To put it more simply, the black swan event caused the bungee jumping market at the beginning, but as time went by, its influence gradually disappeared, and the market returned to the original trend again.

With this conclusion, we have traces to follow when dealing with the black swan event:

1. If there is a short position in the black swan event, then you can follow the direction before the black swan event, and gradually build a strategic position as time goes by, and plan for the future market return in advance.

2. If you are betting on the right direction in the black swan event, you should make a decisive profit and leave the market within two days of the black swan event.

3. In the black swan event, if you bet on the wrong direction with a full position, you should set a stop loss position on each order. Then at this time, you will be automatically stopped at the beginning, which is equivalent to a short position. Then start to repeat the operation of point 1.

From the point of view of trading alone, because most people do short-term, this risk can still be solved, because the worst case is liquidation, but this generally will not cause a devastating blow to you. But there is a big premise that the position should not be too heavy.

In fact, since it is a "black swan", don't try to "predict" the black swan and try to actively avoid it, but "manage" the risk. If your investment unfortunately collides with a "black swan" event, don't look up to the sky and sigh "the sky will destroy me", calmly analyze whether it has subverted the basic logic of your investment, otherwise it may not be so terrible in the long run, and even opportunities will arise .

That is to say, whether emergencies are good or black swans are not the crux of the problem, it is fundamental to do a good job in risk management.

In simple terms, there are three ways of risk management: fund management means, time control/time stop loss means, and space limitation/space stop loss means.

Money Management:

If profit expectations are based on a large time perspective and large swings, reasonable position balance and timely adjustments to increase and decrease positions are required, that is, the trading form of large swings and small positions. Take a small position to test, if it goes against the expectation, stop the loss in a small position, and the loss price is acceptable. Through continuous testing at low cost, good luck comes, looking for opportunities to reduce and increase positions under the premise of staying away from bottom positions and normal trends.

time control:

This element mainly deals with short-term trading, and is especially used in the risk control of intraday trading. Using flexible time zones to control risks is imaginary and invisible. This relies on experience, intuition to perform. It is the most critical tool day players use to control risk. Time stop loss is difficult and complicated. If it is used in the form of small warehouse and large swing trading, the time stop loss method will be greatly weakened.

Space constraints:

This part is mainly to deal with the risk control strategy of small warehouse and large band type. Control your ego and strictly enforce space restrictions. Spatial risk control is an intuitive and tangible shared information in the market. Although the spatial stop loss is a passive behavior, it is more suitable for the trading form of small positions and large swings, because this form has light positions and long profit expectations, so a wider stop loss space should be set.

On the contrary, if you apply time risk control tools to transactions with a large time structure, you will often miss out and cannot make long-term profits. Different risk control tools must be used in the right place, otherwise it will be counterproductive.

Therefore, black swans will always happen, but you don't know when and where, let alone which time it will hit you. It can be just a blip in your investing process, or it can be a fatal blow. As long as you maintain basic risk management awareness and rationally deduce your investment logic, the so-called black swan event will not hurt you too much in the long run, and may even create investment opportunities.

Black swan events often have three characteristics: unpredictability, unexpected events, and major impacts. Therefore, in order to avoid the impact of the "black swan" event, investors often need to take precautions in advance.

First, focus on products you are familiar with. If you are familiar with gold, crude oil and currency pairs, then you can trade on any product. If you are only familiar with and good at gold, then you can concentrate on the gold market as much as possible, because entering an unfamiliar field will face various uncontrollable factors and increase the risk of investment transactions. In June 2016, the British referendum voted to leave the European Union. For those who traded the British pound for a long time, they participated but did not participate in the whole process. The main decline was before the announcement, but it rose after the announcement. It was also selling expectations and buying facts. I will blindly chase short positions, and after a range of about 30%, the market will be in the process of adjusting the market for a period of time.

Second, control the trading position. Warren Buffett did not earn all his wealth in a certain transaction, so investors must not bet all their funds on a certain transaction or a certain transaction during the transaction process, so as to prevent the systematic push-up when the black swan occurs. risk.

Finally, increase transaction data and quality to improve transaction experience. Trading experience is not a pie that falls from the sky, but is slowly made by investors one by one. When trading experience is relatively lacking, if you face a "black swan event" or be at a loss; if you have rich trading experience Most investors often deal with "black swan" events with ease.

If precautions are done well in advance, more than half of the success in the face of "black swan" events is often achieved, but it is not all that investors need to deal with "black swan" events. After-the-fact management is also an indispensable part. If investors can After the "black swan" event, the following coping methods will reduce the impact of the "black swan" event to a certain extent.

First of all, when an event occurs, investors should make an assessment as soon as possible, what kind of impact the event will have on the market, whether it is a short-term impact or a long-term suppression.

Second, after making an assessment for the first time, execute decisively. The investment market requires traders to be quick and accurate, to be able to capture better opportunities before entering the market, and to avoid risks when leaving the market. After the "black swan" incident is assessed as soon as possible, resolute and decisive implementation can avoid further impact of market risks to the greatest extent.

Finally, reflect on the summary. On the one hand, there is no need to be afraid of "black swan" events. Major "black swan" events are rare, and they are blessings or disasters. , improve the ability to resist risks.

The black swan refers to something beyond existing cognition, but its existence is objective.

After the black swan happens, it will bring great shock, but afterwards people will find corresponding reasons for it to explain everything that happened. But because it is beyond the existing cognition, we cannot effectively prevent it.

The same is true in the trading market. What we usually call stop loss is an important tool to protect our account. But when facing a black swan, the stop loss will also fail. The appearance of a black swan is accompanied by a huge gap in the market. Generally, your stop loss will be directly skipped and lead to failure.

Remember the Swiss franc black swan incident? Suppose we had a long position at that time, and the stop loss was set at 1.01, but the exchange rate at that time jumped directly below 0.90, and our stop loss position was useless at all. If you are lucky enough not to be liquidated, then wait 2 months and the price will go back up (in hindsight), and you won't even have much loss.

So here comes the question, how to avoid liquidation when facing a black swan? I think there is only one answer, and that is position management. In other words, you must have enough positions to deal with black swans. For example, when the Swiss franc has risen by more than 2,000 points, your position is large enough to resist this kind of fluctuation, then there will be a chance to come back in the future.

In addition, it is necessary to conduct a profound analysis of the nature of the black swan. To understand whether this kind of black swan has caused huge fluctuations in the short term or has a decisive impact on the long-term direction, this can determine how you deal with the current black swan without liquidation. For example, the appreciation of the Swiss franc this time comes from the cancellation of the exchange rate peg system between the Swiss franc and the euro by the Swiss National Bank, which means that the Swiss franc is allowed to float more freely against the euro.

So in fact, the fundamentals have not changed, but the Swiss franc may appreciate relative to the euro, and this appreciation may be short-term for the US dollar. Therefore, the fundamentals of USD/CHF are still solid, and the positions in hand can be held on the sidelines.

Of course, this is rare and not recommended. The most important thing is to tell everyone that in terms of preventing black swans, one is to set a good stop loss. Second, the management of positions at any time must be scientific, and heavy positions must not be traded.

Experienced black swan event trading

Although the black swan event cannot be predicted, we can look for clues and find out their commonalities by reviewing the history, and provide warning and inspiration for future transactions.

Our team has encountered it among traders, and the following is a post-experience sharing: Sometimes black swan events can completely change the long-term trend of a certain commodity, and some black swan events are just a wave in the long trend in retrospect. The following is an excerpt of our team's experience, using gold and crude oil to list the impact of the black swan event on the market.

The above is the semi-annual daily market price of gold from late May 2016 to late November 2016. See the long K bar with hatched line in the picture? This was the weirdest gold move I've ever come across because it was a very unusual day where a standard black swan flew high! Now let's replay that period: At this time, the US elections are hot, and Uncle Chuan and Aunt Xi are fighting each other with each other. On the day when the votes were counted and the results announced, as Uncle Chuan gradually took the lead in the number of votes, the market began to reverse, and the whole market was boiling with more votes. The reason was simple, Uncle Chuan won unexpectedly! The uncertainty of the US outlook has increased sharply, and the black swan has flown out! When I got up the next day and read the news, it turned out that the newly elected president had delivered a speech, and his statement of maintaining the status quo made the market’s concerns about uncertainty quickly cool down, and gold quickly fell back to $60!

The above quotations gave me inspiration:

1. When the gold market reaches the highest or lowest level of the year after more than half a year, and starts to go down or up after 2-3 months of shock consolidation, it must be a considerable and stable reversal trend market.

2. Treat black swans differently. If there is a black swan that is released at a fixed time and the results exceed expectations, even if such a situation occurs, which greatly changes the short-term trajectory of the trend, you must stick to your original trend view. .

3. In order to prevent a black swan from appearing when a certain major news is announced, the original trend list can be left on the sidelines, and when the false breakthrough is exhausted, the trend list can be placed again.

4. From the perspective of market conspiracy theory, this may be a way for institutions to save themselves and set orders, use false directions to lure market funds into the bait, or reduce entry costs and increase profits by pulling up and smashing the market.

The above is the daily trend of crude oil since July 2019. At that time, it faced a big background: major institutions expected economic growth to slow down, business activities to decrease, and demand for crude oil to decrease. After bottoming out at 50.39 in October, and bottoming out at 50.32 in early August Echoing each other from afar, the double bottom is solid, and there is a need for a rebound on the technical side. On January 3, there was a black swan in the Middle East. After all, it was an incident in an oil-producing country, which was good for the market. I had to give up my original thinking. Buying at 60.5, followed by bullish news one after another, Iran began to retaliate, and the bulls took advantage of the situation to make another move, but crude oil began to fall rapidly after hitting a new high that day. Thinking of the lessons of the 2016 presidential election incident, I sold out my long positions, made a small short order, and held it patiently.

The above quotations gave me inspiration:

1. When a wave of market trends with obvious trends is brewing and developing, don't try to guess the top or bottom, because you can't predict when the market will end.

2. Around this market, there is a strong financial impetus. In a certain period of events, the influence of fundamentals can even be ignored.

3. When the market is clear and clear, cooperate with the sudden and important news, that is, the black swan flies out. The black swan has become a catalyst for trend development, and the market will go on a big wave, and it is very likely to break through the previous or annual highs and lows.

4. After breaking through the high point or low point, the trend has accumulated running space and time, and combined with the fundamental situation and the later trend to judge whether the market has ended.

The above two examples are some insights from our team after experiencing the black swan incident: black swans are not terrible, and judging their impact on the market must be considered in the general trend, and should not be lost due to possible short-term countertrends or breakthroughs Knowing the judgment of the trend and the basic strategy of opening and holding positions, it is best to avoid the black swan event and enter the market after the trend is clear. After all, for traders, stability is the most important thing. You cannot lose your vitality because of the black swan, and the most important thing is to survive in the market in a healthy way.

Why are black swan events so important? If we look back at history, we can see that in the history of the foreign exchange market and the stock market, the rate of return on investment is often determined by several key trading days. If these key trading days do not handle investment decisions well, long-term returns will suffer Big discounts, such as the stock market crash in 2015, if you did not make a key decision in early June, you may still not be able to exceed your net worth at that time. For example, in the Swiss franc black swan incident, it directly opened lower overnight and directly penetrated the position. For example, the attacks announced on 9/11, and even this year's epidemic, have the same effect on the stock market.

Some traders will think that the probability of black swan occurrence is too small, too far away from them, and has little to do with them, so there is no need to worry too much, just manage one-third of an acre of land well. These are usually very superficial ideas, and perhaps even such traders have not experienced the baptism of the black swan market, and do not have a correct understanding of the black swan.

The three major characteristics of the black swan event: extremely small probability, unpredictability, and major impact on the market.

Let me talk about the minimal probability of black swans first. In statistics, there is such a law for small probability events:

A small probability event is almost impossible to happen in one experiment, but it must happen in repeated experiments.

Suppose we select a number from 0-100, and then use a machine to randomly generate a number from 0-100. Then at this time, it is obvious that the probability of being selected is 0.01, and the probability of not being selected is 0.99. At this time, we can regard the selection of the desired number as a small probability event. But when the experiment is repeated 100 times, the probability of not being selected is 0.99^100≈36%, and the probability of being selected is about 63%; when the experiment is repeated 300 times, the probability of not being selected is 0.99^300≈5%, and the probability of being selected About 95%; when the experiment is repeated 600 times, the probability of not being selected is 0.2%, and the probability of being selected is about 99.8%...

Back to trading quotes. We can tentatively understand the black swan event as an abnormal K-line fluctuation in a certain time period (it can be a super big yin and a big yang, or it can be a super long shadow line). Then count a period of time, such as what is the probability of abnormal k-lines appearing in a year? The answer will be the same as the above example. The probability of abnormal fluctuations on the K-line is very small, but as long as there is enough time, it will inevitably happen.

Even if we can guess with a high probability that tomorrow's trading market will still be a calm day, we cannot guarantee that it will be a year. The ultimate goal of each of our traders is to make stable profits and survive in the trading market for as long as possible, then we will inevitably experience black swans. At this time, will you still ignore it because the probability is small?

What's more, we are currently living in an era of turbulent global politics. The probability of this small-probability black swan event is gradually increasing.

Let's talk about the unpredictability of black swans. Only events in which unexpected news reverses the consensus judgment of the market can be called black swans.

Traders conduct research based on public information in the market, and come to a prediction that a certain product will rise in the future. If the market goes as expected and large funds intervene to cause the rise, then even if the rise is very violent, it cannot be called a black swan. The black swan cannot be predicted with the existing public information - it is not included in the existing information, so once it appears, it will inevitably reverse the market consensus.

The famous Swiss franc black swan incident is that the Swiss central bank suddenly announced that it would abandon the peg between the Swiss franc and the euro. No one in the market expected that the Swiss National Bank, which has an extremely developed financial industry, would suddenly renege on its promises. Before that, all market predictions were based on the premise that "the central bank's words can have absolute credibility and can fulfill the agreement." The premise is broken, and the black swan will come.

Finally, let’s talk about the impact of black swans on the market. Many traders who have not experienced black swans do not have a full understanding of the lethality of black swans, thinking that "it is just a little more market volatility", and feel that as long as they set a stop loss, the black swan will not affect them. However, when the real black swan comes, the stop loss has almost no effect and is useless.

The vast majority of ordinary traders are exposed to off-exchange transactions provided by brokers, and the prices are quoted by brokers based on real market transaction prices. When the market shows an extreme trend in an instant and the liquidity is insufficient, the broker will tend to expand the spread to protect its own interests; secondly, because some brokers do not directly trade on the floor, the instantaneous large order transaction forms a price gap—there is no original stop loss The quoted price caused the actual stop loss point to be far from the original stop loss point by hundreds of thousands of miles.

The black swan incident of crude oil on September 16, 2019 is a good example: Saudi oil facilities were attacked during the weekend break. Crude oil jumped 9% at the opening on Monday and expanded to a maximum of 17%. If the trader closed a short order and set a stop loss at $55 last Friday, it would be bad luck: Monday's opening gapped to $57.2, that is to say, the broker did not give a price limit of $55. Quotation, the stop loss will be traded at 57.2 US dollars, a full difference of more than 2 US dollars! At this time, traders are lucky not to liquidate their positions. It is useless to stop losses in front of black swans. Only by rationally allocating trading funds and diversifying risks in multi-variety transactions can the damage of black swans be reduced.

Presumably traders are aware of various "black swan" events in the market. Due to the suddenness of the "black swan" event, it often has an unexpected impact on our transactions. Whether this effect is a surprise or a shock, it is talked about by traders. In this article, we analyze and correctly understand the "Black Swan" event from an objective perspective.

The "Black Swan" event has three distinct features.

One is rarity. A "black swan" event is usually an unexpected event without any expectation, that is to say, there is no evidence in the past that can determine its possibility.

The second is impact. "Black swan" events often bring about extreme market conditions, either flying down 3,000 feet to the limit, or soaring up to 90,000 miles to the limit.

The third is ex post predictability. Only after the "Black Swan" incident happened, people will look for clues to its appearance, and then find out the truth.

The most direct impact of the "black swan" event is the sudden change of the market trend, that is, the original market trend will end suddenly or accelerate suddenly without warning. This also corresponds to a saying often said in the trading market: When you think When you are sure, the market often hits you head-on.

Let’s give a few examples of “black swan” incidents, the most famous of which should be the Everbright Oolong Finger incident in 2013, as well as the previous European debt crisis and so on. Futures traders should be aware of a small "black swan" event in the futures market recently: On the night of November 1, both soybean meal and rapeseed meal went to the limit, only to find out afterwards that it was due to the high-level dialogue between China and the United States, and new developments in the Sino-US trade war emerged. The conclusion, and the price of agricultural products in China has always been closely related to the US market, so it will lead to extreme market prices.

Many futures traders, especially fundamental analysis and arbitrage investors, are particularly afraid of encountering "black swan" events, because "black swan" events that appear without warning often cause a devastating blow to the trading basis they rely on for survival. But this is something we cannot avoid. It fully demonstrates the random characteristics of the market and its "willful and naughty" character.

There are only two things we can do about this:

One is how to prevent the "black swan" incident and minimize the damage it brings. Undoubtedly, setting a stop loss in advance is a good cure.

The second is how to use the market chaos caused by the "black swan" event to expand their profits. Short-term follow-up is a high-risk and high-yield operation technique, but if you don’t understand this kind of market, it’s best to wait and see.

Regarding the "black swan" event, I especially want to say that because the "black swan" event is predictable after the event and the impact of extreme market conditions, many traders try to predict the next "black swan" event before it occurs Come out, become a rule, and even turn it into a basis for your own transactions. I think this is an extremely dangerous misunderstanding. I want to remind traders: For the "black swan" event, what we have to do is to follow the trend after it appears, not to predict when it will appear. I wonder if you have encountered a "black swan" incident that affects you? Welcome everyone to leave a message to share your experience!

Thanks for the invitation to answer. Are black swans in trading rare or common? I think that in the uncertain field of trading, every fluctuation of the market is like a flying black swan.

Sudden black swan, what the subject should want to talk about is the huge fluctuation of the market in a very short period of time or even within a few seconds. How should we deal with it? We must do two things, stop loss and fund management.

In fact, many traders are going to get sick of these two points. Everyone always complains that the people who answer the questions just say a few points back and forth, which is meaningless at all. Money management, I feel that there is no nutrition at all. But what I want to say is that it is brought up repeatedly because it is true.

Stop loss is the simplest, most direct and effective way to deal with black swans intraday. In fact, stop loss is to control our own destiny in trading. When we can't effectively control the profit, we can control how much we lose through stop loss. Stop loss is such a great invention, but stop loss is very difficult. A novice friend of mine once said that you must stop loss when doing transactions. He feels very uncomfortable, because if you stop the loss, you will really lose. It may be because he insisted on the stop loss operation under my "authority", but once Once when the market just hit his stop loss and started to move in the direction of his original order, he didn't believe me anymore, he thought I was just talking nonsense, let me explain it to him, and told him it was Even if it is a normal phenomenon, it cannot match his human aversion to loss. It's really hard to fight against human nature. When a black swan occurs, if the market changes drastically in a short period of time, such as the previous Brexit market, if there is no stop loss, the account must be miserable. Many people still feel that they are not so unlucky and will not be hit by a black swan, but , if you have been trading, you cannot avoid the black swan, you can only find a way to deal with it.

The second type of black swan is the next-day black swan, which means that a huge international event occurred during the suspension period, causing a certain variety to open sharply. This kind of black swan is useless even to stop losses, because the It is very likely that the price will directly exceed the stop loss price, making the stop loss invalid. When the margin is insufficient, the position will be directly sold out. How to deal with this kind? It can only rely on fund management. Why many professional books have mentioned that it is best not to take up more than 2% of the margin for the opening of a single product. This is the conclusion of others after years of trading. The result of tears, but most people don't believe it, thinking that it is too conservative, according to this kind of position management, how can it be possible to make money, come to the market is to seek to get rich, Xiaocang is playing an egg. So I said that many things have to be experienced. When he finds that surviving in the market is extremely difficult, and when his funds shrink repeatedly and there is no compensation, he may understand those reasons.

Trading is an uncertain field. There are too many so-called black swans in the uncertain field. If a trader wants to become a professional trader, he must learn how to deal with these uncertainties.

Are you satisfied with this answer?

? ? ? Since it is a sudden black swan, why do you still have the idea of ​​​​resisting a single order before the black swan comes? No matter how you know that the black swan is coming, but in the face of this kind of market, you still think about resisting orders, I can only say that you are running wildly on the road to death.

As for how to prevent black swans in trading?

One is to avoid trading with heavy positions. No matter how high a person's trading level is, once a black swan event occurs in the market under the condition of heavy positions, funds are likely to cause major losses due to sudden events. The size of the position should be controlled within the acceptable loss range.

The second is to avoid the risk of long holidays. The market is never short of opportunities, what is lacking is patience and waiting. Short-term traders can leave the market to avoid risks. Long-term traders can lock positions for hedging during holidays, and open positions in the opposite direction. One long order and one short order enter the market at the same time. Because there are both long and short directions, the occurrence of black swan events will not have an impact on hedging positions.

The third is to pay attention to stop loss at ordinary times. Insist on formulating and executing a trading plan. Trading is a loser's game, and 90% of them are destined to lose. To become a 10% successful person is to control the risk and minimize the risk in order to get out of the quagmire of losers. Any order must have a stop loss, and reducing losses is the basic guarantee for long-term profitability. When there is a profit, you should pay attention to protecting the profit, and change the stop loss point to the stop profit point. Adhere to the daily formulation of trading plans, and the execution of trading plans is the most basic means of avoiding risks. Trading plan, suspension formulation, intraday execution, unplanned operation is strictly prohibited.

Avoiding risks and avoiding black swan events is to accumulate a little effort to prevent problems before they happen. It cannot be ruled out that some lunatics can still find trading opportunities in black swans.

I myself don't want any black swan events to happen, and I don't want to make money from black swan events. If some real-time major events happen, I still need to have a keen sense of discovering risks and avoiding risks at the first time.

Don't try to eat the black swan. There are many corners in the transaction that don't have to be drilled. Transactions are people's hearts. If you are too greedy, you will have more horns. There is always one that will let you in and not come out.

The existence of black swans confirms the limitations of human knowledge. Our knowledge of the market is also limited, and it is natural for some things to happen beyond our expectations. In investment, I hope that investors can do a good job of pre-prevention and post-event management in response to black swan events, so that when the swan flies, they will not be surprised.

For quite a long period of time, people believed that swans were all white, until one day black swans were discovered in Australia, which completely changed people's previous ideas. Since then, people have called "black swan" events whenever they encounter unexpected events with major impact.

In the capital market, the only constant is change. In investment, black swan events are often inevitable and have a huge impact.

The black swan event is an important manifestation of the changing nature of the capital market, and has the following three common characteristics. One is unpredictability, and investors usually lack effective methods to predict the occurrence of such events. The second is suddenness. The appearance of the black swan event is sudden, and the development of the event is very fast. The third is a huge impact. The occurrence of the black swan event will have a strong impact on the capital market.

Take the famous "Black Monday" in the U.S. stock market as an example. October 19, 1987 was an ordinary Monday. There was no news or event that was obviously unfavorable to the stock market. On this day, the New York stock market unexpectedly plummeted by 5 % and spread to the global stock market, the cause of which is still a very controversial topic. Compared with mature markets, emerging markets in the growth stage, black swan events occur more frequently, and China's capital market cannot stay out of it.

Since the black swan event is very lethal to investment, how should investors analyze and deal with it? Let us first see what the experts say.

In the book "Black Swan" (Black Swan), the author Taleb pointed out: "There are two ways to understand phenomena. The first way is to ignore the extraordinary phenomena and only pay attention to the normal phenomena. The second way thinks that, To understand a phenomenon, one needs to first consider extreme phenomena, especially when they have extraordinary accumulations of effects, such as the black swan phenomenon."

As far as investment is concerned, it is obvious that investors should choose the second method, face up to the objective existence of the black swan event, prepare countermeasures, and deal with it calmly when the black swan event comes, and the core is to do a good job in advance ( ex- ante) prevention and ex-post management.

1. Precautions

Whether you want to believe it or not, the black swan event in the capital market is still coming unexpectedly. The so-called pre-prevention means that investors take reasonable measures to avoid the possible impact of a potential black swan event. Specifically, it can be summarized into the following three aspects.

First, invest in familiar areas. Since investment prospects are full of uncertainties, entering unfamiliar fields will further amplify the uncontrollable factors in investment, so investors should not easily get involved.

Second, diversify investment targets and reduce overall risk. Dividing funds into different asset classes can have the effect of "losing something, gaining something", that is, avoiding all bets on a single asset.

Third, test the risks in extreme cases. Investors can use commonly used stress testing methods in the world to monitor the risk exposure of investment portfolios in extreme market environments, make timely adjustments, and reduce unexpected losses.

Second, after the event management:

Due to the unpredictability of the black swan event itself, although prevention in advance can reduce the adverse impact of the black swan event on investment to a certain extent, once the black swan event occurs, it will still have an impact on investment. Therefore, ex post management remains indispensable. Post-event management involves coping methods after black swan events, and generally includes the following points.

First, quick judgment. After a black swan event occurs, investors must first judge the impact of the event on investment and the impact time, and decide how to deal with it based on the judgment result. For a short-term shock, you might as well stay calm and wait for the market to rebound; but for a persistent shock, you must cut your positions in time to avoid greater losses.

Second, execute decisively. There is a Western proverb "don't cry over spilled milk". After a black swan event, self-pity and indecision often lead to greater losses. Taking bond investment in 2013 as an example, if you can decisively liquidate your position in June when the money is scarce, you can still lock in a 2.15% return, but if it is delayed until the end of December, you will lose 2.10% for the whole year.

Third, timely reflection. Investors who have experienced the black swan event need to reflect on themselves and sum up successes and failures in a timely manner, so as to improve their ability to resist risks.

When facing the black swan event, face it calmly. There are many unpredictable things, but most of them will be brewed before they appear, so you must prepare in advance, you can choose to participate or not, and predict whether the consequences can be accepted .

Our investment consists of two parts: the first is forecasting and judgment. The second is coping. The reason for coping is because our knowledge of the world is always limited. Only when we have a particularly deep understanding of investment varieties, the response is not so important. For example, you are very clear about a certain company in stocks. You know that it can make a profit of 1 billion this year, but its current market value is only 3 billion. Then you can go back and forth and ignore any fluctuations. But the reality is that our cognition is limited, and the entire huge market system will be affected by various aspects. It can also be refined to the individual, but uncertainties still exist, ranging from the correct rate of a single order to emergencies and even the central bank's dynamics. Therefore, in the face of market adjustments, we must be more vigilant, and we must have reservations when entering the market.

For the black swan, I believe that almost no one has the ability to predict in advance. What has happened in the past few years has been the Brexit euro against the Swiss franc. Ori directly shrouded the market in an atmosphere of terror without warning, and was powerless to deal with such incidents. The British pound fell by about 30% before the incident, and when it was implemented, it fell after a wave and began to recover. This is also expected, and the relationship between expectations and facts. So let me say here that the first type of black swan is unpredictable and has nothing to deal with. The second type can be predicted, but the risk is very high, you can participate but with a good stop loss, of course, you can not participate.

Generally speaking, black swan events have three characteristics:

1. Surprising

Unexpectedness means that we usually don't think of it at all, or think it is impossible to happen at all. For example, this new crown epidemic, who would have expected it? Another example is the September 11 incident in 2001, the SARS in 2003, the global financial crisis in 2008, the European debt crisis in 2009, the Japanese earthquake in 2011, etc., before it happened, no one would have predicted it.

2. It will have a huge impact

If a black swan event does not occur, once it occurs, it will often cause huge destructive power. For example, the whole world has been involved in this epidemic, which has become a once-in-a-century health crisis. Now more than 1.1 million people have lost their lives, and the destructive power is astonishing.

Another example is the global financial crisis in 2008, when global stock markets crashed off a cliff, and trillions of assets were wiped out.

3. Can be explained after the fact

Although the black swan event is unexpected, human nature prompts us to fabricate reasons for its occurrence after the fact, and think it is more or less explainable and predictable.

Take, for example, the 2008 global financial crisis. Afterwards, a bunch of people wrote books, using various facts to prove that the subprime mortgage crisis was inevitable, but apart from Paul Krugman, few scholars could really predict it beforehand. Even if it was predicted, it was not expected that there would be such a large destructive force.

Although Zhuge Liang cannot recover the losses after the fact, the advantage is that people can find out the reasons that lead to the occurrence of black swan events, thereby reducing the probability of similar events.

From this point of view, a black swan event is an event that has a small probability of occurrence but is extremely destructive and can be prevented afterwards.

As for how to deal with risks, this depends on how you understand it.

Just like the kind of gap you mentioned, the simple way to avoid it is not to hold positions overnight. So if you are a short-term player, this rare black swan will basically not do any damage to you.

Of course, even if you hold an overnight order, after all, the frequency of black swans is extremely limited, and the actual damage it brings to you is controllable. The worst case is a liquidation. As long as your position is not heavy, you will not be hurt. bone.

For the medium and long-term, it is not new to reasonably avoid black swans, and investors still have the initiative to some extent. For example, if you invest in a company, the most important thing is to respect common sense and think about issues such as whether the high ROE matches the industry status, whether the barriers to competition are strong enough, and whether the real business situation is consistent with the financial statements. It's about overcoming your inner fears and trying to be as objective as possible.

In March 2020, the Dow experienced four circuit breakers within a month. This trend made the stock god Buffett bluntly say that I can no longer understand the current stock market. Netizens ridiculed me and Buffett to witness the historical moment of the US stock market.

This is a jaw-dropping event for many traders.

However, looking back at the four-hour trend chart of the Dow, it is not difficult to find that everything is history, just like a sentence in "Dow Theory" "History is always repeated".

• For the first time, on February 24, 2020, the winter solstice opened a gap and directly fell below the lower track of the shock range that has been volatile for many days. This is a very important signal for the start of a short trend. And the MACD's fast and slow lines are all below the zero axis, indicating that the breakout is likely to be a short-term trend rather than a short-term short-term adjustment. After that, the market fell all the way, directly breaking through 25,000 points.

• The second time, on March 6, 2020, the Dow experienced a short-term adjustment. The price once stepped on the 60-day moving average, and then returned to the 10-day moving average. It is a short position adjustment. The safe way is to set the stop profit to the previous low position, keep short positions in light positions, and continue to go short on the trend. Then, the price only made a short-term adjustment at the previous low position, and then fell all the way below 2000, and finally stopped falling around 18100.

Looking back, the one-month short trend of the Dow here is similar to the price law of any variety in history.

On the surface, it brought unprecedented panic to the market, but after the cocoon was stripped away, it was nothing more than another performance of the law of price operation.

Outsiders watch the excitement, while insiders watch the doorway.

Will the black swan incident stop there? The answer is "impossible"

The next black swan event, the next gray swan event, and the next bear market... are all one of many price movement rules. After the waves, the beach has not changed, the waves have not changed, "everything business as usual".

How to do it? If you have your own mature trading system, everything is still executed according to your own trading system without any adjustments - "business as usual".

To solve this problem, we must first read Taleb's Black Swan tetralogy, "Fool Walking Randomly", "Black Swan", "Anti-Fragility", "Asymmetry", and first establish the correct concept.

The main question is not how to avoid risks when a black swan event occurs, which can only be regarded as strong resilience, but how to capture and profit from black swan events, which is considered anti-fragile.

In fact, the core is how to deal with uncertainty correctly. Black swans are just an extreme form of uncertainty.

This is a very grand topic, just like you ask others how to get rich. To put it bluntly, a black swan is a risk, but the influence of this risk is too great, and if you fail, you will be wiped out. But the black swan is not the whole risk, it is still different from the general risk.

Black swan comes from Taleb's "Black Swan", which believes that black swan events have three characteristics: rarity, great impact, and unpredictability after the event. Such as the 911 incident, the financial crisis and so on. For transactions, black swans refer to very unpredictable and unusual events, which usually cause a negative chain reaction or even subversion in the market.

History is made of Mediocristan and Extremistan. But the world is dominated by extremistan, the unknown and the very unlikely[1]. What we don't know is more important than what we know. This is the real reason for the black swan event.

How to deal with risks like black swans, these principles are worth learning from:

(1) Don't predict

It is impossible to predict when the black swan will happen, and an accident that can be predicted is not an accident. Making wrong predictions about unpredictable things and taking wrong actions will only make bigger mistakes.

(2) Take precautions

The destructiveness of the most extreme black swan event must be analyzed most carefully, and the most adequate prevention must be done. This is a major event that determines success or failure.

(3) Opportunities in crisis

The biggest crisis will have the biggest plunge, and it will also form the best investment opportunity. You should be like Buffett in the financial crisis, others are dead, I am alive, and the gun is full of bullets!

(4) Maintain redundancy

That is, there is ample room for everything, and there is only one purpose, which is to prevent the black swan catastrophic event that occurs once in a hundred years or even once in ten thousand years.

For investors, slack refers specifically to cash, which is the opposite of debt. If you hide your money under your mattress, you have better defenses against black swans. At the beginning of 2008, before the financial crisis broke out, Buffett had cash assets of US$44.3 billion in its accounts, plus retained operating profits of US$17 billion. The accumulated cash surplus exceeded US$60 billion, accounting for half of the company's net assets.

(5) Don't be in debt

As a former Wall Street trader, Taleb knew the dangers of borrowing money to speculate. He said: "There is a very important precept for individuals and institutions: We can reduce 90% of the black swan risks in economic life. . . . All it does is cancel speculative debt."

Buffett himself is extremely risk-averse, and his Berkshire company has a very low debt ratio. In 2010, Buffett emphasized the risk of debt in his letter to shareholders: "Any series of favorable data, no matter how exciting these data, will be wiped out as long as they are multiplied by zero. History tells us that even very smart people , the result of using financial leverage is often zero."

In actual investment, if you hold short-term positions for a very short time, the possibility of being directly hit by a black swan is not very high. But if you are doing long-term investment, especially when it involves buying and selling stocks, it is really necessary to study how to reduce the impact of black swans.

Whether it is in the period of fundamentals or normal, you must develop the habit of reading industry news. You can selectively read professional news interpretations, or you can simply use the 24-hour financial calendar to quickly understand what happened. Will the transaction have an impact?

Keep abreast of news information in a timely manner, so that trading information will not let you fall into the situation of deceiving yourself, ignorance is the most terrible thing for trading. To judge a transaction, you should not just stick to the technical indicators, but ignore the fundamentals and market sentiment you are about to face, otherwise you will be slapped in the face by the market sooner or later!

When you have a certain degree of control over the important information about the transaction, your transactions will be more grounded.

When you carry 10,000 yuan with you, you must be full of fear when you walk alone on the street in the dead of night; but when you carry 100 yuan with you, you walk swaggeringly without any worries!

Therefore, light storage is a must.

Set a stop loss to give yourself more room to play. Setting a stop loss in the transaction is like buying accident insurance. In case of an accident, we are not afraid, which can naturally help us reduce our fear. But the most important thing is to set the stop loss position more reasonably. A stop loss that does not work at all is no different from not setting it.

With good money management, a loss will not cost you dearly. Fund management can help us effectively control the ratio of profit to loss, and have stronger control over our own funds. According to the size of the market risk, different positions are adopted to minimize losses. When we can estimate in advance the cost we need to pay in the worst case, we will naturally not panic so much!

Black swans can only be prevented. If there is no measure, when the black swan comes, you can only be caught.

With a history of more than 200 years, the international capital market has formed a set of self-operating mechanisms and systems that do not require government intervention and have mature self-healing capabilities.

Therefore, after the black swan event, the self-healing ability can absorb the huge impact of the event on its own price fluctuations, allowing the market to re-balance.

On the other hand, the international capital market has always followed the law of price operation. Long before the event, it has informed investors that the future trend has occurred or is about to reverse through the K-line trend of the disk.

A four-hour chart of crude oil prices from March 6, 2020 to March 18, 2020.

In March 2020 this year, crude oil futures plummeted for the first time in history, and the quotation was negative. I think many people still remember it.

Crude oil prices first jumped directly at the opening of the market on March 9, and then fell unilaterally again on March 16 to hit the lowest price of crude oil in history.

(1) As early as March 6, the 10-20-30 moving averages in the four-hour chart were unilaterally arranged and the MACD fast and slow lines were all pointing to the zero axis. The signal had already informed traders that the bearish trend of crude oil had been established and they could enter short positions.

(2) After that, on March 16th, the 10-20-30 moving averages were arranged unilaterally again, but the MACD was a red bar, suggesting that traders may be short-term short-term this time. It is best to set the previous low to take profit and keep Light positions continue to do trend empty orders.

From the two crude oil short positions this time, it is exactly the same as the usual trading strategy. No adjustments were made to positions due to unexpected events, and the discipline of the trading system was implemented before and after.

The price operation rule is earlier than the time of the event, and the trend is notified to investors in advance. White swan or black swan, bull market or bear market are all the results of the price operation rule, and the change of the trend is always earlier than any event that occurs.

thank you

If you encounter a sudden black swan, the fastest and most correct way to deal with it is to close the position immediately, regardless of the profit or loss of the account, because there are green hills left, and you are not afraid of running out of firewood. Next, I will do a simple analysis for you, which will allow you to understand more clearly how much harm the black swan will cause if it still trades.

One: Unable to control the black swan event

When a black swan appears, it is reported that most people on the K-line cannot make correct trading moves in time, and more of them are dead-end. The risk caused by this is a lifetime of hard work and a temporary death. Even if you are lucky enough to get a huge profit for a while, but once a year, as long as you are still trading, you will lose back what you earn based on your strength. You will not have such good luck every time.

Two: Unbalanced profit-loss ratio

In this kind of big event, if you continue to participate in or continue to hold the order, you will not be able to accurately predict the follow-up situation, and the result you will encounter is nothing more than profit & loss, which seems fair, but in fact, if you encounter this type of transaction again At the time of the incident, 99% of the users made small losses but lost more, and the profit-loss ratio was seriously out of balance. You would leave almost all of the profits, but a lot of losses were hard to bear. I would suggest cutting off most of the players For peace of mind, wait until the incident passes before re-trading.

Three: Invalidation at the trading technical level

When the black swan comes out, the market will always make people dizzy. At this time, the market is completely out of order, which is completely contrary to your trading method. At this time, you still trade according to the original technical level. 9% Ten will lose troops and lose generals.

Three: The risk of trading has increased sharply

The normal market is very strenuous to play. This kind of black swan is not an opportunity for retail investors to be full of money, but to sharpen their knives and rush to pigs and sheep. Remember that capital is always harvesting. We must avoid its edge at all times to make ourselves relatively safe.

In summary , in the face of the black swan event, turning off your computer and mobile phone is your best choice, don't think about getting a piece of it! You can pay attention to the market, but it is not recommended to place an order to participate. If you can’t control it, you will fall into the trap of fund harvesting.

Readers, if you are interested in my answers, please follow my Huihu account. I will regularly answer some industry-related questions every week. I don’t seek the most professional, but the most authentic.

When it comes to trading, many people may think that the challenge comes from how to make more profits. In fact, the first challenge of trading is risk control.

Generally speaking, the risk control system is the first to be deployed and tested in the trading system. The risk control system monitors currently completed transactions, upcoming transactions and positions exposed to the market in different ways.

Through various monitoring, the trading system can ensure that all current transactions are controllable and within expectations, so a robust and reliable risk control system is crucial to the health of the entire transaction.

For the designed risk control system, it can be roughly divided into two categories according to the location it monitors and the sensitivity to delay.

Strategy Risk Monitoring

Such as the total position of the current strategy, trading volume, etc. These indicators are usually soft indicators, which means that even if the preset threshold is exceeded for a short time, there will be no major problems. Therefore, it is not sensitive to the delay of monitoring such risk parameters. Usually, such monitoring will be placed on a central node, which is usually an order management system (OMS). The network structure of OMS is a typical star network system. The advantage of the star structure is that it is convenient to collect data from each transaction node and control it. Even if a single transaction node is damaged, it will not affect the communication of other transaction nodes. However, this structure usually also faces the problem of single point failure, so the central node must have high reliability and be able to complete the hot switch between the two machines to achieve dual machine hot backup.

Risk monitoring of orders

Such as order size, price and so on. These indicators are usually hard indicators, which means that the parameters of each order cannot exceed the set threshold, so the trading system must check the corresponding risk parameters before issuing an order. These additional checks usually mean that Additional latency, how to achieve low latency for risk control has always been a cutting-edge research project.

Like other components of the trading system, this type of risk monitoring is implemented in both software and hardware. Compared with hardware, software implementation means less development investment and faster development time, but it also means higher latency. Even if it is realized by software, the design of different structures and the processing of different details will cause differences in delay. For hardware, the resulting latency is a full order of magnitude smaller than a software implementation, and is essentially constant and independent of network packet size. The realization of the current part of hardware risk control, different companies and different structures also have very different performances. This part is that the beholder sees benevolence, and the wise see wisdom.

Black swan incidents (English: "Black swan" incidents) refer to very unpredictable and unusual events, which usually cause a negative chain reaction or even subversion in the market.

Generally speaking, a "black swan" event refers to an event that satisfies the following three characteristics:

First, it is unexpected.

Second, it has a major impact.

Third, despite its unexpectedness, human nature prompts us to invent reasons for its occurrence after the fact, and to regard it as more or less explainable and predictable.

Black swans exist in all fields, and no matter whether they are financial markets, business, economy or personal life, they cannot escape its control. Whether it is in anticipation of the foreign exchange market, government decisions, or ordinary people's daily simple choices, black swans are unpredictable.

Because it is unpredictable and has a great impact, its arrival often makes people unprepared. At this time, all we need to do is stop the loss! stop loss! stop loss! There is no other way to say important things three times.

Of course, as the topic owner said, what should I do if I encountered an overnight gap, and even have no chance to stop the loss? This requires us to prepare in advance: 1. Try not to hold positions overnight; 2. If you hold positions overnight, you must set a stop loss position and let the computer automatically stop the loss for you.