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

...Continue to the part one

The above is the daily trend of crude oil since July 2019. At that time, it faced a major background: major organizations expected economic growth to slow down, business activity to decrease, and crude oil demand to decline. After dropping to 50.39 in October, almost reaching the bottom line of 50.32 in early August, the double supports were solid, and there was a rebound demand on the technical side, so I made a buy order at 51, and after 58.5 crude oil could not rise up, I finished the long order and kept watching.

But then the crude oil rose like a yak, with a very slow and resolute rise. Given that the rise has exceeded the extend of my understanding, I waited while pondering, looking at the previous high of 61.2, and wondering if it exceeded the record, can I go short?

As a result, on January 3, 2020, a black swan came out in the Middle East. After all, it was an event in the oil-producing country. It was very profitable to the market and I had to give up the original idea.

After buying more at 60.5, the long sentiments were strong. Iran began to retaliate. The longs took to the next level, but after the new high was reached on the day, crude oil began to fall rapidly. I thought about the lessons of the 2016 presidential election event, so I ran out all my longs, made a short list, and I patiently held it.

Lessons from the above market:

First, when a wave of clear market trends in brewing and development, do not assume the support and resistance, because you cannot foresee when the market would come to an end.

Second, around this market, there is a strong push of funds. In a certain event, the influence of fundamentals can be ignored.

Third, when the market is clear, a sudden major news is release, and that’s when the black swan flies out. The black swan has become a catalyst for the development of the trend, and the market will have a big wave, which is likely to break through the early or annual highs or lows.

Fourth, we should cumulate the running space and time of the trend after a comprehensive breakthrough of the high or low point, combined with the fundamentals situation and the subsequent trend, and then determine whether the market has ended.

The above some of my thoughts after going through the Black Swan event.

The black swan is not terrible, and its impact on the market must be considered in the megatrend. Nor can we lose our judgment of the trend and its basic strategy of opening and holding positions due to the short-term adverse trend or breakthrough trend. For the Black Swan event, it is best to avoid it and enter the market after a clear trend.

After all, for traders, stability is the most critical. We shouldn’t let the black swan hurts our trading vitality, it is the most important for us to survive in the market.