A short thread about Randomness, Trading and Risk Management.

Today is a great example of the Random nature of inputs into the market. No one going to bed last night could have possibly known by the morning President Trump would have tested positive for Covid.1/6

Some short-term traders would have had new long positions in the SPX, and at least some of them would have had too much size on, without a stop. In other words, they would be setting themselves up for a potential risk management failure. By the time they have woken up, 2/6

their broker may have forced a closure on their account due to exceeding margin limits.

They may be bemoaning their bad luck, saying things such as ‘no one could have seen this move coming’. To that extent they would be right. But that‘s not the point. Random events happen, 3/6

no one ever sees them coming. And if you over commit on risk, or do not have some sort of circuit-breaker (stop), or both, you leave yourself open to being a victim to random events. It’s not that we can foresee random events happen. It’s that random events happen, 4/6

and they always get you eventually. If you don’t prepare by having a solid and robust process, then you‘ll fall victim to them eventually. Whatever you think can’t happen, can and will.

Some of these traders will bounce back, and if they learn from this they 5/6

may become great traders. Bit of they don’t then they’ll fail again, and make pronouncements such as ‘its impossible to succeed in trading outside of luck’. Which resolves their own cognitive dissonance.

This is only a minor event, but is a great example.

Best of luck...

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