Comments on Welcome to the Gutter: Bitten by the Black Swan...Don't Let It Happen To ...

Great article all 'round. Also good plug for t...

2011-03-27T18:29:18.607-07:00

Great article all 'round.
Also good plug for trading puts (when available) instead of going short!

Aaron and PCH, Thanks for your comments! Anon, ...

2010-12-29T10:17:45.024-08:00

Aaron and PCH,

Thanks for your comments!

Anon,

When I say I risk $400 per trade, that is in relation to my stop loss. So if I have a 10 cent stop, my position size is 4000 shares (because I would lose $400 if stopped out).

I think one more Black Swan event was missing from...

2010-12-27T14:32:30.926-08:00

I think one more Black Swan event was missing from this excellent discussion. First, though, a major hat tip for this post, as this risk needs to be constantly reiterated for traders. Black Swans do happen, even if one has "been trading forever" and never had it happen to them. Great post!

I think traders should remember that Black Swan events often occur at the same time as a halt. One time, for example, I was short BTIM when the stock was halted upon publication of a "possible cure for cancer." I was short a few hundred shares at about $5 overnight.

This one event changed my perspective on trading forever. The stock was halted by NASDAQ and news was released that the company had published a "possible future cure for cancer" article in a reputable academic journal.

Wow was that was one of those eureka moments. I seriously had no idea what would happen to the stock the next day. I read the article, and it was fluffy... but it was just overall the general idea of "No way I am short a stock that might cure cancer!"

Where would the stock be tomorrow? Twenty? Five hundred? Eight hundred thousand? I mean there really *wasn't* a ceiling. The stock could anywhere in theory. I was short a possible cure for cancer, unbelievable. I barely, barely slept that night. Fortunately, there were offers near $8 the next morning for my cover and the biggest sigh of relief ever.

Make sense? A Black Swan + halt (especially while short) could destroy your financial life forever.

You only risk $400 per trade???

2010-12-26T16:57:35.341-08:00

You only risk $400 per trade???

I must say I can completely relate to your Black S...

2010-12-25T20:44:28.239-08:00

I must say I can completely relate to your Black Swan bite, as I took a bit of a hit on XOMA as well ($760). Luckily I covered my overnite short in the pre-market. However, I ALMOST went long @ 4.58 at the same time, because of one thing...XOMA didn't dip at ALL in the after narket on Wed night after quite a run up...which was a strong sign for me that this stock WAS going to momo on Thursday...and boy was I sick when it did...just for missing out on such a run!

Thanks for the sharing your experience...very helpful!

Anon, I completely forgot about boxing the trade....

2010-12-25T08:13:10.898-08:00

Anon,

I completely forgot about boxing the trade. At one point I did consider it when it was testing 5.94, but it failed the test at first. When it retested it, I started getting emotionally stressed and completely forgot about going long in IB.

Pretty much poor decision making all the way around for me.

Haha, Michael! I'll try to stick with picking...

2010-12-25T08:10:24.731-08:00

Haha, Michael! I'll try to stick with picking fights with white swans instead :)

One quick question. Have you ever thought about bo...

2010-12-24T17:26:03.090-08:00

One quick question. Have you ever thought about boxing your XOMA short with a long position in your IB account? By doing this, the PDT issue in your Speedtrader account almost becomes a moot point (pending the negative equity).

James, I won't repeat what you have already wr...

2010-12-24T15:15:30.682-08:00

James, I won't repeat what you have already written. But next time, please don't go around starting fights with black swans.