Will Black Swan Event Crash Markets?


Simpler Trading Team

Feb 18th 2020  .  2 min read

Are coronavirus problems revealing a Black Swan event?

Questions have been lingering since news first broke of the virus spreading, and traders want to know if the market is setting up for a major tumble.

In the stock market, a Black Swan event is an unexpected and sudden situation — war, weather, pandemic, technology advancement — that drastically affects the market in a negative way. A Black Swan event can’t be predicted with any traditional forecasting methods. The event can’t be calculated into forecasts because it doesn’t exist until it suddenly occurs.

How can traders be prepared for something that doesn’t exist and can’t be calculated by any forecasting models?

This is where being disciplined and controlling emotions, i.e. not letting news affect you, comes into play as traders. The market will follow its own path no matter what, so always be prepared to take what the market gives.

In reality, smaller negative events happen all the time in the market. An unexpected bad earnings report can tank long positions, and a sudden fraud filing against a CEO can wreck a company’s stock. These smaller unexpected turns don’t get as much attention as the hyped effects of a Black Swan event on the scale of a global virus pandemic.

No matter what negative news may be filtering into the market, traders can manage the downside by focusing on a predetermined trading plan that manages risk.

Following chart patterns and searching for solid trade setups can eliminate much of the noise created by news headlines.

Traders can learn to trade while accepting uncertainty. Accept whatever may come, and keep trading forward.

We Saw: market fears rising as coronavirus spreads — 

  • AAPL loses value after warning of Q2 lower revenue
  • Oil falls as demand drops due to coronavirus
  • Gold gets a boost as investors check risk

We’re Watching: what the charts show and which setups look good  — 

  • News from AAPL isn’t good, but the technical setup still looks great
  • Seeking low-risk, high-reward bearish strategies — staying emotionless
  • Keeping an eye on metals, especially buy signals on Gold and Silver

Learn more about navigating news and the markets — check out the Simpler Trading community HERE.