Saturday, March 19, 2011

Expect the Unexpected

Too often we heard traders commented "Didn't expect the market to drop down so low", "Strong support here, market should rebound" and "No reason for market to come down to such levels, it was so bullish yesterday"

Sound familiar?

Anyone caught in the Nikkei meltdown on Tuesday?

Some traders made millions in just a few days while many were asked to top up their margin or have their long positions liquidated automatically by their brokers. This type of wild movement hardly happen and most short term traders were caught, they just didn't know where to cut or how to cut or too painful to cut.

On Thursday, 10/3/2011, Nikkei was still trading around 10500 levels for most of the day, very strong, consolidating at these levels for the past month despite the sell down of most Asian stock market.

Nikkei came crashing down on Friday after a massive earthquake hit the North Eastern seabed of Japan and subsequent Tsunami that pulverised some coastal cities. Monday sell off continues with the Nikkei traded down to a low of 9130.

Panic sets in on Tuesday when one of the nuclear reactor in Fukushima exploded sending radioactive fumes into the atmosphere. The Nikkei was sold all the way down to a low of 7790, real devastating nightmare for those holding long positions.

A former floor trader revealed that his paper losses was more than US$200k at one point by averaging down on his bad positions. Well, that's the danger of this type of strategy unless you have deep deep pocket. He held on to his positions and cut his losses on the way up only losing below US$20k at the end of the day.

It was a blessing to him, he was happy and lucky to lose this smaller amount but if he had held on to his positions, he would at least be making US$100k now. So what's the moral of the story?

Another friend revealed that he made more than S$100k in just a few minutes on Tuesday during the opening, he managed to catch that big fat rabbit that got lost.

One of my student told me that his classmate from another course made more than a million shorting the Nikkei since Friday upon hearing of the Tsunami that wipe out some coastal cities in Japan. He added on to his short position on Monday and finally took his profit on Tuesday, just 3 days but he was prepared for it. This guy is a natural born trader, my respect to him, a very humble chap.

I suppose there are many great traders out there making tons of money, it happens only once every few years, yours if you have the guts to take the risk.

1 comment:

coconut said...

great coverage and praise to the trader who lost 20 instead of 200.