A couple of weeks ago, an associate of mine, Jim and I were discussing some of the volatility we had seen the market. Of particular note was the unprecedented move of the Swiss franc. As you probably already know, earlier this year the Swiss National Bank removed the cap on the currency’s value versus the euro. As the Swiss franc made an almost 30% rise against the euro, the markets and just about everyone involved was completely caught off guard. The move devastated many individual traders and large financial institutions as well.
Jim and I also discussed that this unprecedented level of volatility could be a sign of things to come. I could sense the concern his voice when Jim calmly asked me, “So, how did you make out during that incredible move in the Swiss?” I humbly replied, “I was not in that market at the time”. After I made that statement Jim really looked relieved. I told him that it wasn’t that I was a genius or anything, it’s just that I happened to not be involved in the Swiss in any way at that time.
I have been chatting with friends and associates about the market for a number of months. Basically, I wasn’t trying to predict the direction of the market, but simply to offer my humble opinion that a correction of some sort in the US stock market was imminent.
Last Thursday and Friday as well as today we saw the stock market take some huge losses. Those are three of the biggest down days in recent history. On the flip side of the coin those three days turned out to be my three most profitable days in the EURUSD this year. Again, I’m not a genius or anything. I just happened to be trading a system that put me on the right side of the market at that time.
Should my friends and associates have heeded my advice to be cautious? Perhaps. I had been suggesting to them for months that I have yet to see a market that goes straight up forever or a market that goes straight down forever. Some of them insisted that analysts said that their stocks have much higher to go. I didn’t disagree with what the analysts were saying, but cautioned my friends and associates that the analysts’ assessment has nothing to do with the fact that their stocks may go down a great deal before they resumed their upward move.
I said all the above to emphasize the infinite importance of controlling your risk, especially in these times of increased volatility. Now let’s be realistic. While controlling your risk is smart and prudent is not necessarily 1000% foolproof. For instance, if I had been on the wrong side of a trade with any currency pair that included the Swiss franc, I would be singing quite a different tune. Fortunately, for us controlling our risk when using a robust trading system allows us to build equity over time.
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