The event risk is hard to predict
There are three types of risk:
- Market risk: Up and down price risk inherent in a market that has buyers and sellers battling it out on transparent prices
- Event risk: Risk from any event, like economic data, central bank policy, political news, or any other event that might influence the price of a traded instrument
- Liquidity Risk: Bid and ask price risk as a result of liqudity conditions in a market. Spreads can widen. The price can scoot lower or higher.
Market risk is always there.
Event risk - in normal times - are at pre-planned times like at 8:30 AM ET when retail sales or employment statistics are released. However, event risk can also happen at random times, and the event can be anything that moves a market.
Liquidity risk typicall goes hand in hand with event risk. If there is a surprise event, liquidity conditions are lessened. The risk increases. Liquidity risk can also happen when the market is not at full strength too.
So when you have markets like today, where the prices are initially influenced by an event like impeachment chatter. Then you get a headline from the Pres. saying he can rectify that "impeachment" problem. Then minutes later you get another headline saying impeachment inquiry will go on anyway, those are all events that are randomly announced, and influence the price action immediately over a time period. Moreover, the liquidity conditions can be influenced because of the randomness of the headlines and time of day when markets are not a full strength.
With Pres. Trump and the way he does things, and with the divide between the Pres. and the Dems, these types of random "event risk" events can cause all sorts of havoc for traders. Some of the randomness may worok out for you as a trader. Some may not. When they are like the ones we just went through that caused the USDJPY to run higher and then run lower minutes later, it be frustrating for all.
For example, the trader who bought against the 107.00 natural support level in the USDJPY, may have suddently found the price up at 107.40 in a matter of seconds on the Trump headline (that he would release the transcripts).
However, that same trader, could have had that profit erode quickly on the next random headline that impeachment inquiry would go on anyway. UGH.
The point is... for traders, politically inspired markets driven by randon events tend to be the worst type to trade. The main reason is you can't predict when the next market driving event may happen. That is tough. When the politics start to go back and forth, like it did today, even worse.
I can handle a retail sales or employment report. At least I have a choice to trade it or not. But when random "events" are peppered at any time by politicians looking to be ... well political, its time to step aside until the feeling to be political goes away.
