You like surprises?
Well, the market always has surprises for everyone. And there is one with a first and last name that perhaps no one wants to have under the tree either at Christmas or at any other time of the year.
The term "black swan" was coined by writer and extrater Nassim Nicholas Taleb in his book "The Black Swan: The Impact of the Highly Improbable" (2007). Taleb defines a black swan as an event that has the following characteristics:
It has a great impact.
It is explained a posteriori, but not a priori.
An event that causes an unexpected movement in the financial markets. It can be political, economic, social or natural in nature.
History is full of black swans that have had a great impact on the financial markets. Some notable examples are:
The financial crisis of 2008.
The crisis was caused by a combination of factors, including the housing bubble, the subprime mortgage crisis, and the liquidity crisis.
The COVID-19 pandemic.
The pandemic caused a global economic collapse, with record falls in stock markets.
The Ukrainian War.
The war has caused an energy and food crisis, with unpredictable consequences for the world economy.
As you see, they can be caused by natural events, such as earthquakes or tsunamis, as well as by human events, such as wars, political crises or technological disasters.
These are difficult events to predict. To give you an idea, the terrorist attacks of September 11, 2001 caused a collapse in the financial markets, since investors were not prepared for something so unexpected.
They can have devastating consequences for those of us who dedicate ourselves to this world, causing significant losses, even for those of us who are more experienced.
In the case of the 2008 financial crisis, many traders lost their entire savings. The COVID-19 pandemic also caused massive losses, causing hundreds of thousands of accounts to close.
They usually have systemic consequences, affecting the entire economy. For example, the 2008 financial crisis caused a global recession that lasted several years and from which it was difficult for many to emerge.
How to protect yourself from black swans
It is impossible to predict exactly when a black swan will occur. However, there are some things we can do to protect ourselves from its consequences.
One of the most important things that we have surely already told you several times is to diversify your portfolios. This will greatly help you reduce the risk of losses if a black swan causes a negative movement in a certain market.
Of course, a good risk management plan, which includes loss limits for each trade. With indicators that allow you to make quick and accurate decisions.
Stay connected with other professionals from all over the world, Paying attention to the news and market movements is crucial because information is power. And together, we can work noticeably better.
Take a look at what we have for you on YouTube and take your operations to the next level with us.
Until the next post!
For this article, prompts have been used to request information
interpreted and provided by AI (Google Bard). Written and edited
by Kevin David Terán and verified by Pedro Arizaleta and Erwin Sánchez