Shock Markets: Trading Lessons for Volatile Times [NOOK Book]


Don't fear crises: use them as opportunities to make money! Shock Markets shows traders and investors exactly how to do it -- with exceptional detail, not vague handwaving. Robert Webb and Alexander Webb offer meticulous breakdowns of recent crises, revealing how they impacted both individual stocks and the market as a whole -- and helping you create detailed game plans for profiting from future shocks. By fusing real-life trading examples with rigorous moment-by-moment analysis of price changes, they give you ...
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Shock Markets: Trading Lessons for Volatile Times

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Don't fear crises: use them as opportunities to make money! Shock Markets shows traders and investors exactly how to do it -- with exceptional detail, not vague handwaving. Robert Webb and Alexander Webb offer meticulous breakdowns of recent crises, revealing how they impacted both individual stocks and the market as a whole -- and helping you create detailed game plans for profiting from future shocks. By fusing real-life trading examples with rigorous moment-by-moment analysis of price changes, they give you tools to survive and thrive in even the most volatile markets. This accessible, actionable book answers crucial questions like: What moves stock prices? What moves the overall market? How can you profit from understanding catalysts that precipitate sudden sharp changes in stock prices? From the actions of corporate executives to regulatory decisions, earnings announcements to merger deals, lawsuits to settlements, macroeconomic reports to the policy actions of foreign governments, seemingly remote factors can have a huge, sudden impact on stocks in today's interconnected markets. Shock Markets illuminates these catalysts, and demonstrates their shifting behavior during fads, fashions, bubbles, crashes, and market crises. The focus is completely practical: helping savvy traders uncover profit where others find only peril.
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Product Details

  • ISBN-13: 9780133345803
  • Publisher: Pearson Education
  • Publication date: 4/9/2013
  • Sold by: Barnes & Noble
  • Format: eBook
  • Edition number: 1
  • Pages: 300
  • File size: 4 MB

Meet the Author

Robert I. Webb is a Paul Tudor Jones II Research Professor at the University of Virginia. He has traded fixed income securities for the World Bank and futures on the floor of the Chicago Mercantile Exchange. He designed new financial futures and futures option contracts for the Chicago Mercantile Exchange, where he served as Senior Financial Economist. He has also served as Senior Financial Economist for both the Executive Office of the President, Office of Management and Budget, and the U.S. Commodity Futures Trading Commission. He earned his Ph.D. in finance at the University of Chicago. Webb edits The Journal of Futures Markets and is author of Trading Catalysts and Macroeconomic Information and Financial Trading.

Alexander Webb is a writer with a keen interest in finance, emerging markets, politics, business, technology, and international travel. Living in Asia for half a decade, Alex earned a baccalaureate degree in International Business and Global Management from The University of Hong Kong. He studied Mandarin at the Chinese University of Hong Kong, Beijing Language and Culture University, and at Shanghai Jiao Tong University. He also studied in Japan at Ritsumeikan Asia Pacific University. He worked as an intern at a Chicago Options trading firm and is currently working on a new book.

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Table of Contents

Chapter 1  The Nature of Trading      1
Why Study Market Shocks?     2
The Nature of Trading      3
Different Perspectives of Trading      4
Market Conditions and Sentiment     7
Making Trading Decisions     8
Looking Ahead     9

Chapter 2  Five Simple Questions     13
Which Market(s)?     13
Which Direction?     16
   Bear Stearns     17
   The Market Reacts to the Employment Report     22
   Trading Lessons     28
How Much?     28
How Long?     30
   The Market Reacts to the Fed     30
   The Market Reacts to the November 2012 Employment Report     32
   How Quickly? Mad Cow Disease     34
   How Quickly? CME Group Stock Price     35
How Risky?     36
A Sixth Question     38
Additional Trading Lessons     39

Chapter 3  Fads, Fashions, and Bubbles     43
Is It Really a Bubble?     44
Can You Profit from “Bubbles”?     48
Is the Market Smart?     51
   Market Efficiency     53
   Irrational Speculation and the Limits of Rational Analysis     54
   Irrational Pricing     57
Trading Lessons     59

Chapter 4  Earnings and Corporate Announcements     63
Earnings     63
   Google     64
   Apple     66
   Facebook and Zynga     67
   Sudden Drops     70
New Products—Videogames     71
Mergers and Acquisitions     76
   Anatomy of a Deal: Bank of America and Countrywide Financial     76
   Quaker Buys Snapple     79
   Merrill Buys FRC     80
   Deals That Fail     81
Changes at the Top     82
   RIMM Shot     82
   Best Buy     83
   Wellpoint     83
Regulatory Actions and Lawsuits     84
Trading Lessons     85

Chapter 5  Rumor Has It     95
Rumors     96
   United Airlines Takes a Nosedive     96
   Nokia Misdials     98
   Hyundai Motors     100
   HBOS     100
   Steve Jobs’ Health     102
   Audience Inc.     102
Position Announcements     103
   “The Oracle of Omaha”     103
   David Einhorn     104
   Carl Icahn     105
   Muddy Waters     105
Shorted Companies Bite Back     106
Trading Lessons     107

Chapter 6  Political Economy     113
Political Shocks—Terrorist Actions, Wars, Assassinations, and Policy Actions     114
The 2000 U.S. Presidential Election     115
Expropriation     116
Cooling the Economy and Markets     120
Central Banks to the Rescue     121
Central Banks as Speculators     124
   The Swiss National Bank     124
   The Bank of Japan     125
   Bank of England     128
   Bank Negara Malaysia     129
   Trading Lessons from Central Bank Interventions in the FX Market     129
Trading Lessons     131

Chapter 7  Predatory and Insider Trading     139
Predatory Trading     140
   Porsche as a Hedge Fund     140
   Whales in Trouble     144
   It Only Takes a Moment     149
Speculative Attacks—“If at First You Don’t Succeed...”     150
LIBOR     152
Gunning for Stops     153
Informed Trading     154
   Puts on Bear Stearns     155
   Dow Jones & Company Stock     156
Trading Lessons     157

Chapter 8  Crashes, Trading Glitches, and Fat-Finger Trades     163
The May 6, 2010 “Flash Crash”     163
   Trading Lessons     167
   Other Flash Crashes     168
October 19, 1987 Stock Market Crash     169
Other Stock Market Crashes     174
Fat-Finger Trades     176
Trading Glitches     177
   Trader Errors: “Algos Gone Wild”     178
   Interruptions of Trading on Exchanges     179
   Trading Glitch Case 1: The Tokyo Stock Exchange Suspends Trading     183
   Trading Glitch Case 2.A: The TSE Fails to Cancel Clearly Erroneous Trades     183
   Trading Glitch Case 2.B: The TSE Fails to Cancel Clearly Erroneous Trades     184
   Trading Glitch Case 3: The TSE Suspends Trading     185
Trading Lessons     186

Chapter 9  Man Versus Machine     191
Algorithmic and High-Frequency Trading     192
   Old Strategies     193
   New Technology     196
   “New” Strategies     198
   Ramifications     200
Avoiding HFT     206
Trading Lessons     207

Chapter 10  Flight to Safety     211
Reducing Risk     211
Credit Default Swaps     212
Nature of the Crisis     217
Gold     218
Treasuries     224
Currencies     225
The Paradox of Wealth Preservation     227
What Is Safe?     228
Trading Lessons     229

Chapter 11  Why Most Traders Lose Money     233
The Banks     234
Behavioral Finance     236
   Overconfidence     237
   Risk Aversion     237
   Loss Aversion     238
   Disposition Effect     238
   Mental Anchoring     238
   Heuristics Not Statistics     239
A Tale of Two Losses     240
Warren Buffet and EFH Bonds     241
Trading Lessons     243
   Failure to Cut Losses Short     243
   Failure to Let Profits Run     244
   Failure to Listen to the Market     246
   Confusing Trade Conviction with Trade Retention     246
   Excessive Leverage     247
   Trade Size Is Too Large     247
   Trading Too Frequently     248
   Would You Rather Be Right or Rich?     249
   Failure to Have a Viable Trading Game Plan     249
   Failure to Follow a Viable Trading Game Plan     249
   Remaining in a Trade After the Reason for Entering the Trade No Longer Exists     249
   Good Trades That Lose Money Versus Trading Badly     250

Chapter 12  Developing a Trading Game Plan     255
Trading Edge and Trader Type     255
   Trading Edge     256
   Trader Types     256
Trading Thesis     257
Making a Trading Game Plan     257
   Trading Thesis and Trade Identification     257
   Trade Selection     258
   Choice of Security     259
   Size     259
   Trade Horizon     260
   Risk Control—Stops     260
   Crowded Trades     261
   Correlated Bets     262
   Risk On/Risk Off Markets     262
   Trade Execution     262
Trade Monitoring and Contingency Plan     263
Trade Completion and Evaluation     264
The Message in the Behavior of Market Prices     265
Trading After a Market Shock     265
Shocks: Scheduled and Unscheduled     266
Trading Maxims     266
   Control Yourself, Because You Can’t Control the Market     266
   Get Prepared to Play, Don’t Play to Prepare     267
   Limit Risk—Not Reward     267
   Learn from the Past—Don’t Live in It     268
   There Are No Martyrs in the Market— Only Casualties     269
   Don’t Bet More Than You Can Afford to Lose     269
   Hope Is Not a Plan     269

Index     271

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