In financial jargon, what is a “black swan”? And how does a black swan affect traders?
In the financial world, this is an event that is rare, unpredictable, and has a significant impact on the financial markets. The term “black swan” was popularized by Nassim Nicholas Taleb in his 2007 book “The Black Swan: The Impact of the Highly Improbable.”
This type of event is characterized by three key features:
It is unpredictable: A black swan event is something that could not have been predicted based on historical data or statistical models.
It has a significant impact: The event is usually a major shock to the financial markets and can cause significant losses for investors.
It is rationalized in hindsight: After the event has occurred, people often try to rationalize it and make sense of why it happened, even though it was unpredictable.
Examples of black swan events in the financial world include the 2008 financial crisis, the 1997 Asian financial crisis, and the 1987 stock market crash. These events were all unexpected, had a significant impact on the global economy, and could not have been predicted by standard financial models or historical data.
Develop your trading skills and knowledge adequately so you can manage your risk appropriately in the case of these events.
Besides improving your manual trading skills, another option is robot trading. Robots trade without emotions, thus allowing you to avoid the trauma associated with unexpected events. Whatever your style of trading, always practice good risk management. Most people lose their accounts because of over trading, ie., trading too big of a lot size.