4 Events to Watch out For when you Trade

by admin | Jun 22, 2023

When you’re a mechanical trader.

And when you think you got trading in a bag.

You still need to be logical and rational when trading the markets.

There are exceptions.

And you need to consider these exceptions which could have a profound effect on the financial markets.

It’s these unforeseen circumstances, that you need to take the stand.

You might need to risk less.

You might need to not take the trade.

You might need to halt trading for a few days.

All because of these potential 4 events.

Let’s get into them so you can stay out of them.

Black Swans are highly unpredictable events that go beyond what is usually expected of a situation.

One definition I like is this.

A Black Swan is where an event can cause the market to move 10 standard deviations away from the norm.

When this happens they could potentially have severe and wide-reaching consequences.

You’ll see the market will jump erratically and even cause a halt in trading activity completely.

So when you spot a Black Swan. Just take it easy from trading the markets that can be affected.

Here are 10 Black Swan Events that I can think of that had an impact on the markets.

Triggered by the collapse of the US housing market, it led to a worldwide banking crisis and severe global economic downturn.

An unprecedented global health crisis that had significant repercussions on global economies and markets in 2020.

The dramatic rise (due to greed and optimism) and fall (due to fear and panic) of internet companies in the late 1990s led to a severe market correction.

Britain’s unexpected decision to leave the EU had immediate impacts on global markets.

This led to a lost decade of economic stagnation in Japan.

(Have you seen the Nikkei! And can you imagine holding stocks from 1992?)

The Swiss National Bank’s sudden decision to remove the cap on the Franc’s value against the Euro led to extreme currency volatility.

(Forex trading was a nightmare seeing some prices drop hundreds of pips).

The terrorist attacks had immediate and long-term effects on global economies and markets.

(I was too young to worry so I missed this one.)

Triggered by a massive earthquake and tsunami, it had significant impacts on global energy markets.

(I remember holding oil stocks while driving. And I came home to R120,000 loss).

The US stock market crash, triggered by a high-frequency trading algorithm, sent a financial shockwave around the world.

(Fat fingers caused by unknown factors).

For the first time in history, the price of US oil turned negative due to low demand during the COVID-19 pandemic.

The Non-Farm Payroll (NFP) report is the big one.

It is released on the first Friday of each month and is a key economic indicator for the United States.

It shows us the total number of paid US workers, excluding farm employees, government employees, private household employees, and employees of non-profit organizations.

When the numbers are higher than expected, there are more jobs and the stock markets go up.

When the numbers are lower than expected, there are less jobs, more pessimism which causes stock markets to plummet.

Significant deviations from forecasts in the NFP data can lead to major spikes in market volatility.

If the data shows job growth, it indicates a strong economy, which can boost the US dollar and negatively impact bonds due to the potential for increased interest rates.

Conversely, lower-than-expected job growth can indicate a weakening economy, potentially weakening the US dollar and boosting bond prices.

Keeping an ear to the ground for both micro and macro announcements can provide a trader with essential foresight.

On a micro level, company-specific news such as:

These can result in large price movements.

On the macro level, broader economic announcements like:

You’ll see these will have a ripple effect on wider market movements.

Price gaps occur when there’s a significant difference between the closing price of one trading period and the opening price of the next.

Basically, a void between two price candles.

This generally happens when one market moves up during the day. And then a bigger and leading market crashes. This results in the first market opening a lot lower down than the previous close.

This can be due to an impactful event that happened in the time between the two periods.

Keep an eye out on these four events.

It’ll help you better navigate the market landscape, react to volatility, and potentially make better trading decisions.

Remember, the financial markets are affected by a myriad of factors, and a keen understanding of these key events can be a critical part of your trading strategy.

Trade well, live free.

Timon Rossolimos
Founder, MATI Trader

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4 Events to Watch out For when you Trade

When you’re a mechanical trader.

And when you think you got trading in a bag.

You still need to be logical and rational when trading the markets.

There are exceptions.

And you need to consider these exceptions which could have a profound effect on the financial markets.

It’s these unforeseen circumstances, that you need to take the stand.

You might need to risk less.

You might need to not take the trade.

You might need to halt trading for a few days.

All because of these potential 4 events.

Let’s get into them so you can stay out of them.

Black Swans (Unprecedented events)

Black Swans are highly unpredictable events that go beyond what is usually expected of a situation.

One definition I like is this.

A Black Swan is where an event can cause the market to move 10 standard deviations away from the norm.

When this happens they could potentially have severe and wide-reaching consequences.

You’ll see the market will jump erratically and even cause a halt in trading activity completely.

So when you spot a Black Swan. Just take it easy from trading the markets that can be affected.

Here are 10 Black Swan Events that I can think of that had an impact on the markets.

2008 Global Financial Crisis

Triggered by the collapse of the US housing market, it led to a worldwide banking crisis and severe global economic downturn.

COVID-19 Pandemic

An unprecedented global health crisis that had significant repercussions on global economies and markets in 2020.

Dotcom Bubble Burst (2000)

The dramatic rise (due to greed and optimism) and fall (due to fear and panic) of internet companies in the late 1990s led to a severe market correction.

Brexit (2016)

Britain’s unexpected decision to leave the EU had immediate impacts on global markets.

Japanese Asset Price Bubble Burst (1992)

This led to a lost decade of economic stagnation in Japan.

(Have you seen the Nikkei! And can you imagine holding stocks from 1992?)

Swiss Franc Unpegging (2015)

The Swiss National Bank’s sudden decision to remove the cap on the Franc’s value against the Euro led to extreme currency volatility.

(Forex trading was a nightmare seeing some prices drop hundreds of pips).

September 11 Attacks (2001)

The terrorist attacks had immediate and long-term effects on global economies and markets.

(I was too young to worry so I missed this one.)

Fukushima Nuclear Disaster (2011)

Triggered by a massive earthquake and tsunami, it had significant impacts on global energy markets.

(I remember holding oil stocks while driving. And I came home to R120,000 loss).

Flash Crash (2010)

The US stock market crash, triggered by a high-frequency trading algorithm, sent a financial shockwave around the world.

(Fat fingers caused by unknown factors).

Oil Price Negative (2020)

For the first time in history, the price of US oil turned negative due to low demand during the COVID-19 pandemic.

Non-Farm Payrolls (Major spikes during news release)

The Non-Farm Payroll (NFP) report is the big one.

It is released on the first Friday of each month and is a key economic indicator for the United States.

It shows us the total number of paid US workers, excluding farm employees, government employees, private household employees, and employees of non-profit organizations.

When the numbers are higher than expected, there are more jobs and the stock markets go up.

When the numbers are lower than expected, there are less jobs, more pessimism which causes stock markets to plummet.

Significant deviations from forecasts in the NFP data can lead to major spikes in market volatility.

If the data shows job growth, it indicates a strong economy, which can boost the US dollar and negatively impact bonds due to the potential for increased interest rates.

Conversely, lower-than-expected job growth can indicate a weakening economy, potentially weakening the US dollar and boosting bond prices.

Possible Warnings (Micro and Macro Announcements)

Keeping an ear to the ground for both micro and macro announcements can provide a trader with essential foresight.

On a micro level, company-specific news such as:

Earnings reports

New product launches

Executive changes

M&A activities

Rights Offers and share distributions

These can result in large price movements.

On the macro level, broader economic announcements like:

Changes in monetary policy

inflation rates

QE (Quantitative Easing)

Credit tightening

GDP growth

Consumer sentiment

FOMC, Central banks meetings and economic talks

and geopolitical events

You’ll see these will have a ripple effect on wider market movements.

Huge Gaps (Spikes in Volatility in Prices)

Price gaps occur when there’s a significant difference between the closing price of one trading period and the opening price of the next.

Basically, a void between two price candles.

This generally happens when one market moves up during the day. And then a bigger and leading market crashes. This results in the first market opening a lot lower down than the previous close.

This can be due to an impactful event that happened in the time between the two periods.

Keep an eye out on these four events.

It’ll help you better navigate the market landscape, react to volatility, and potentially make better trading decisions.