Shock Markets
Trading Lessons for Volatile Times
Published on 23. May 2013
Book
Hardback
304 pages
978-0-13-233795-3 (ISBN)
Description
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.
More details
Language
English
Place of publication
Upper Saddle River
United States
Publishing group
Pearson Education (US)
Target group
Professional and scholarly
Dimensions
Height: 231 mm
Width: 164 mm
Thickness: 39 mm
Weight
510 gr
ISBN-13
978-0-13-233795-3 (9780132337953)
Copyright in bibliographic data and cover images is held by Nielsen Book Services Limited or by the publishers or by their respective licensors: all rights reserved.
Schweitzer Classification
Persons
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.
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.
Content
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
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