Two weeks ago, Saudi Arabia and Russia decided they were no longer chums. The result sent shockwaves across the planet. Whilst that sounds dramatic, for many people the drama was real.

An instrument that typically moves a few percent in a day, then has a gap down of around ten times the average volatility. 

How do you prepare for that? It blew up trading accounts globally and quite possibly brought down some institutions, as was the case when the Swiss National Bank unpegged the franc from the euro. I remember a trading story of two traders – both who had the same position – one who had their stop miraculously hit and the other didn’t and blew up. Through sheer luck, one was able to continue trading. And one ended up in sizable debt. 

This is why risk management is so important. I recall a quote “risk is what you don’t” see – which is exactly right. In most cases, assessing what will go wrong will cover all the bases. But how many have been broadsided in this latest market crash, despite everyone knowing that stocks were overvalued and we’d had the greatest bull market of all time?

It’s a nice idea to think that stocks move according to the value of their future cash flows but in reality it’s people like you and I bidding and jostling on small caps, and algos and hedge funds doing battle on the larger caps. 

Last week, we looked at stocks that could bounce sharply. In particular, we looked at William Hill, Dart Group, and Restaurant Group, all of which did 100% from the lows. Sadly, I only caught William Hill, as I missed Dart due to the WMH auction, and then completely took my eye off the ball on RTN. A costly mistake, but at least I generated the idea. If I can’t generate any ideas, that’s when I need to be worried. Converting ideas into tangible profits is what trading is, and no ideas means no money. 

I use Twitter to monitor sentiment, and now that we have seen a big rally nobody is calling for the market to be suspended anymore. In fact, stock prices only ever seem to be irrational when they’re falling! But is this a suckers’ rally?

Here’s a quote from Mark Minervini. I like Mark, and his…

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