When you actively trade a stock or a futures contract, you are not holding a position all of the time. That’s very important because stocks spend a lot of time doing nothing, or doing the wrong thing. To offset these sometimes prolonged periods of aggravation or boredom, we get an occasional price shock, such as September 11, 2001, the U.S. invasion of Kuwait, a presidential election, or a surprise interest rate increase by the Federal Reserve. A price shock causes an unpredictable, large jump in prices.
Note that the term unpredictable means that you can’t plan to make a profit, no matter how clever you are. When you are always in the market, you will always be tossed around by price shocks, most of them small, a few of them very big. We’re going to spend some time throughout this course looking back at price shocks. They are the rare random events that cause the greatest losses among traders. The longer you trade, the more you’ll see price shocks. You don’t ever want to make the mistake of thinking that it was skill that netted a big profit from a price shock. It was luck. Next time, or the time after, you won’t be lucky. It’s a 50-50 chance.
Note that the term unpredictable means that you can’t plan to make a profit, no matter how clever you are. When you are always in the market, you will always be tossed around by price shocks, most of them small, a few of them very big. We’re going to spend some time throughout this course looking back at price shocks. They are the rare random events that cause the greatest losses among traders. The longer you trade, the more you’ll see price shocks. You don’t ever want to make the mistake of thinking that it was skill that netted a big profit from a price shock. It was luck. Next time, or the time after, you won’t be lucky. It’s a 50-50 chance.
Get the RSS feed
No comments:
Post a Comment