What to do with a Black Swan Event? (Part One)

In addition to the trend and volatility, the most interesting topics among traders is a black swan event. Its outbreak was so sudden that it was either a sunny thunderbolt or a chicken roaring in the middle of the night without any symptoms, or it was a planned announcement event, but the published results were very different from previous widely expected, leading to sudden changes in the market, because the black swan has extremely Big uncertainty, and fast come and fast gone.

Sometimes a black swan event can completely change the long-term trend of a certain product, and some black swan events are just a wave of a long trend in retrospect. The effects of the black swan event on the market are listed below with gold as the first example:

The above is the semi-annual daily market price of gold from the end of May 2016 to the end of November 2016. See the long K with a shadow line in the picture? This is the weirdest gold quote I've ever encountered, because that day was very unusual, when the standard black swan spread its wings freely! Let’s see how things went--

Since the New Year's Day in 2016, gold price had finally broken away from the three-year decline, and had risen from 1061 and has gone all the way. After 7 months, it reached an annual high of 1375. After completing the nearly $ 300 increase, gold began to fluctuate for two and a half months.

In the second month after the shock, I chose to wait and see. According to my past experience, after the periodical high point consolidation is completed, it will continue to rise or continue to fall. Sure enough, the market fell sharply in early October, so I followed up. After all, a wave of more than $ 90 decline was firm and obvious after consolidation.

It fell to around 1241 in the early rise, and a wave of potential rebound began. I chose the original short order to lighten up the position, and tried a rebound strategy for small orders. Around 1300, the tentative rebound for many orders also went away, and I continued to short. At this time, the US election was ongoing, and Trump and Hillary were fighting with each other.

I thought that now that the market is down, the news may be clear and in line with expectations, but I didn't feel as secure in my heart, so I claimed 70% trend orders out of the market the day before the election was announced. On the day of publishing the vote and announcing the results, as Trump's votes gradually took the lead, the market began a major reversal, and I couldn't help but sweat.

In 5 hours, gold rose by nearly $ 70. I closed my short order at 1295 and made a rising order close to the pips. As a result, by 1337, the entire market was expecting long, yet the reason is simple—Trump was an unexpected winner!

Uncertainty for US prospects has skyrocketed, and black swans are flying! But I did not dare to stay too long, after all, I made a profit of nearly $ 40 on that day, but no more orders were made, and gold fell by $ 60 that night! I got up the next day and was stunned!

Upon reading the news, the newly-elected president delivered a speech, maintaining the status quo's stance so the market ’s has cooled slightly. When rebounded to 1285, I made a small short order while only saw 1230. I closed after falling below 1225 more than I expected.

I didn’t expect it to fall again. It fell to 1175 at the end of November, and finally fell to 1123 in mid-December before braking. Although I added a position after falling below 1200, I wasn’t very sure of myself to take orders as I entered in mid-way, and I did not implement market trends to the end.

Lesson from the above market:

First, when the gold market has reached the highest or lowest level of the year after more than half a year, when the shock consolidation begins to go down or up after 2-3 months, there must be a considerable and stable trend reversal.

Second, treat black swan differently. If there is a kind of black swan that is released at a fixed time and the results exceed expectations, even if such a situation greatly changes the trend in a short period of time, you must stick to your original trend view.

Third, in order to prevent the emergence of a black swan when a major news is announced, you can leave, then wait and see, waiting for the false breakthrough to reach its end, and then lay out the trend plan again.

Fourth. From the perspective of market conspiracy theory, this may be an organization's self-rescue package, which attracts market funds in a false direction or through raising and hitting the market to reduce the cost of admission and increase revenue.

More to come…I will release the part two maybe by tomorrow.