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Economic Calendar as a Trading Guide
Black Swan Event Is
A black swan event is a rare event and an unexpected event that has severe consequences as a result of the event. Black swan events can cause huge losses in the market and economic losses. A black swan event is a rare and unexpected event that comes as a surprise and has a significant impact on society or the world. These events are said to have three characteristics that distinguish them very rare and beyond ordinary expectations; They have a severe impact after they hit and they seem possible in the background when a plausible explanation comes along.
Black Card American Express and Its Advantages
Why is it called the Black Swan Event?
The term Black Swan comes from the (Western) belief that all swans are white because only this is taken into account. However, in 1697 Dutch explorer Willem de Vlamingh discovered the black goose in Australia. This was an unexpected event in history (scientific) and profoundly changed zoology. After the black swan was discovered, it became clear that the black swan must exist just like any other animal with a variety of colors also known to exist. In retrospect, the surrounding context (i.e., observations about other animals) seems to imply the Black Swan's assumption – empirical evidence validates it.History of the Black Swan Event Theory
Taleb introduced the idea of the Black Swan event back in 2001, but it attracted attention when he dedicated an entire book on the subject in 2007 just before the world experienced the Black Swan event in the form of the financial collapse of 2008. The term 'Black Swan' refers to the story that Westerners believed that all geese were white only because it was the only thing they had ever seen, until that belief was debunked when Australia was discovered and the first black swan was discovered. The first black goose sighting may have come as an interesting surprise to some ornithologists, but that's not where the story lies. It describes severe limitations to our learning from observation or experience and the fragility of our knowledge. A single observation can undo a common statement dating back thousands of years confirming sightings of millions of white swans. All you need is one black bird. The Black Swan theory suggests what you don't know is much more important than what you know. You can use all your knowledge to prepare for what you believe to be every possibility, only to be proven wrong by a single Black Swan event.Black Swan Events That Ever Happened
The following is a black swan tragedy that has happened.1997 Asian Financial Crisis
The Asian financial crisis of 1997 was a series of currency devaluations that spread across several Asian markets, beginning when Thailand released the baht to the US dollar. As a result of the ensuing crisis, Asian currencies fell by 38% and international stocks fell by almost 60%.2008 Housing Market Accident
Prior to 2008, mild standards for home mortgages led to housing market inflation, which eventually led to bubble rate prices as subprime mortgage issuance increased. Large banks and funds capitalized on the market, creating mortgage-based securities that, in turn, made banks make risky loans. Eventually, the housing market collapsed, causing more homeowners to default on their mortgages, causing more severe market damage. All financial institutions are on the verge of collapse."Dotcom" Crash
Due to the rapid growth in internet usage in the 1980s and 1990s, many internet companies were launched. However, many of these companies fail after some time. In addition, many of them were overrated. From 2000 to 2002, several internet companies crashed, resulting in significant losses for investors. The dotcom crash wiped out nearly a trillion dollars worth of stock value. The NASDAQ Composite lost 78% of its value in the dotcom crash.Black Swan Investment Strategy & Risk Management
The book of Taleb outlines strategies for preparing for the black swan event. One of the main focus areas is risk management. Taleb discusses the so-called barbell strategy. This strategy keeps most of the investor's assets in ultra-safe vehicles and moves a small portion into speculative investments. The risky portion of the portfolio should not exceed 10% of the overall portfolio. The idea is that most money is protected during market panics, and high-risk ventures have a chance to soar. Another strategy that investors can take to reduce the effects of black swan events is to diversify. Usually, when one area of the market is doing well, other areas tend to perform poorly. By having a diversified portfolio, investors can take advantage of growth in various market conditions.What does the Black Swan event mean for traders and investors?
So, how does one prepare for the unknown? The theory isn't about trying to predict future Black Swan events, but acknowledging that it will happen and making sure you're prepared to react to whatever happens. This means ignoring most predictions and forecasts, especially long-term ones. Taleb said 'we made 30-year projections of social security deficits and oil prices without realizing that we couldn't even predict this for next summer' because 'our cumulative forecast errors for political and economic events are terrible'. Investing under the Black Swans principle is inherently bearish, and rests on the fact that the world needs to focus more on prevention rather than treatment in the event of a catastrophic event. The problem it faces in engaging many investors and traders is that preventive tactics rarely offer the same rewards as treatments. For example, a company that discovers a vaccine for a virus that is considered a threat but has not yet caused disease or death in humans will be considered unnecessary and will not get applause, but companies that find it stopping the pandemic will be showered with a reward. Similarly, if an investor is consistently bearish in fear that a Black Swan event could occur, then their returns will significantly underperform until that happens. However, as the number and extremities of Black Swan events increase as the world becomes more complicated, Black Swan investments are gaining momentum. Unsurprisingly, attention to it increased when the Black Swan event occurred, so the coronavirus will push it back into the spotlight as investors look for ways to reduce risk, hedge their bets, and diversify their portfolios to protect themselves from the unknown. For example, this could involve sucking up a portion of your portfolio into safe haven assets like gold even when the market is on a long-term rise and the price of gold is not generating any returns – at least until the market falls again – or hedging your positions. You tend to underperform in the market during a bull run, but it will be much better when the market crashes. Alternatively, when examining different stocks, consider the threats and risks that are not listed in the company's key risks and how they perform under different scenarios. Black Swan investing is all about looking for stocks or other financial instruments that can provide huge profits if the market falls. This strategy only works after a crash occurs, so it can incur losses for a long period of time before being cashed out when a crash suddenly occurs due to the Black Swan event. Take Universal Investments as an example. Run by Mark Spitznagel and Taleb, the Black Swan fund 'formalized and institutionalized the idea of tail risk hedging' and has benefited greatly since the coronavirus outbreak plunged the market into chaos. It is reported that the fund has increased by more than 3600% during the crisis – but noted that its performance over the previous 10 years was unattractive and loss-making as the market continued its gains. However, the strategy seems to be paying off in the long run, given that the fund is still estimated to be up more than 200% in the last 10 years, thanks in large part to the last few months alone. A separate report showed an investor could use only 3.3% of their portfolio in Universa and the rest was an S&P 500 tracking fund and they would see a 0.4% return in March 2020 – a month when the benchmark index plunged 12%. Black Swan investing is not for the faint of heart or impatient. As Spitznagel once said, it's like trying to learn the piano for 10 years and struggling to play chopsticks all in the hope that one day you'll wake up and be able to play Rembrandt.Make Your Trading a Good Event
Making a good experience is something that will make you happy. However, not a few traders choose illegal brokers because of the low admin fees. You need to be careful when choosing a broker because the capital you provide can be a boncos. Getting a trusted service is your right as a trader, therefore choose a transparent trading platform that can be trusted, GICTrade will provide a good experience for you, download now the GICTrade Apps only on the Google Play Store and Apple App Store. In addition, you can start registering to be able to start trading on GICTrade.
