Questions on dealing with prices shocks, and one other question, too:
I think because I've been having a pretty good last few weeks trading large on small moves, I've been reflecting again on how I would handle things if I just so happened to get caught on the wrong side of a significant price shock. I happened to be long but in only a small position, for instance, on 1/03 when the Fed surprised. I happened to be short a couple of weeks ago when that little "ThreatCon Delta" panic hit, awarding me with another fast little windfall. Though I think that basic trading rules can be helpful in preventing adverse shocks - being massively short on 1/03, for instance, would have implied too little respect for a massively oversold market - but I can't ignore the virtually unpredictable element of randomness involved when a macro-incident hits your carefully mapped micro-landscape.
Because I remain maximally "exposed" for only short periods of time during any given session, I believe the odds are in my favor - i.e., it's improbable that a single unpredictable price shock will, at minimum, wipe out months of hard trading in a few second. On the other hand, I think that the odds are against me (and against all of us), over the long term: I expect that sooner or later I'm going to get SPIKED hard. On a lower level, it's also not unusual to be trading in one direction or another then suddenly get spiked by, say, a surprise stock-specific announcement or even by a CNBC tout.
I wonder how you all at Intraday Investments deal with this possibility: Is there a limit you place on total unhedged exposure? Do you have a "fire escape" plan or plans worked out, differentiated by nature of shock (stock-specific, sector-specific, general; obviously serious, possibly serious, possibly temporary, etc.)? If you had been heavily short on 1/03, how would you, realistically, have reacted - desperate scramble to cover, sit back and then pick up the pieces, some mixture? If you're massively long, and something majorly ill occurs somewhere on the globe, how would you like to think you'd respond? What rules do you have for the more mundane situations - short CIEN, and it suddenly re-affirms guidance (happened to me a few weeks ago)?
Also, what happened to your daily trading reports? |
