Page 18 - Trading #101 Course – Part One: Trading Basics

TRADING #101 COURSE – PART ONE: TRADING BASICS /2017-10-06

In addition to being just plain interesting, both Tables illustrate a very real possibility.
They illustrate a market risk possibility where you can get trapped in a trade for a longer
period than you planned on. And, in this situation even your most carefully selected
stop loss exit cannot protect you from the price activity and volatility that may result.

Some traders fare better in these events than others. For example, trader Paul Tudor
Jones predicted and profited from the 1987 crash. He attributed the crash to portfolio
insurance derivatives which were “an accident waiting to happen” and that the “crash
was something that was imminently forecast-able”. Wikipedia, Black Monday (1987),
Causes.

In the end, whether you have a profit or a loss after a zero-liquidity event, it is crucial
that you play the “what if?” game beforehand. Work this into your business plan.

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