ary effects on price (see Box 7-1). Weather could cause a structural change in supply but rarely does; it always results in an immediate overreaction. Lack of rain, too much rain at the wrong time, freezes,and monsoons all cause a nervous reaction. By harvest, it is clear thatcorn and soybeans are exceptionally healthy crops, and that Brazil ismore than happy to supply the U.S. consumers with any orange juiceshortfall at an agreeable price.Price shocks based on surprise economic news are often structural;prices try to jump to a level that is a fair assessment of the news. Themarket may push prices a little too far, but overall a trader cannotexpect to profit from a price reaction. When the Central Bank announcesa rate cut of 0.5 percent, prices must move to the level dictated by thatchange. If a 0.25 percent cut was anticipated, then prices move down; ifa 1 percent reduction was expected, then prices move up. With periodic economic and statistical releases, the difference between the news andthe anticipation determines price reaction.Many long, fast price moves are not price shocks. Weather-relatednews is often anticipated by the market. A freeze or hurricane does notoccur without warning. As cold weather moves south to Florida, tradersand growers become concerned about the increasing likelihood of afreeze. They start hedging by buying futures, or covering their shorts.The result is a market that starts drifting higher in advance of a freeze.A speculator using a simple moving average system may get a buy signal ahead of severe weather, the result of informed reaction to anticipated weather.Similarly, a change of regulation that affects industry often has warning. A vote before Congress to change pollution control or standardshas clear, sometimes measurable effects on a group of companies. A billlikely to pass finds its results already discounted in the stock price.
Impact of a Price Shockon an InvestmentA price shock can cause a severe equity fluctuation in a fully fundedaccount, but many traders use leverage whenever possible. Shocks can
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vary from 3 percent to 30 percent of the value of the asset. If you hold aconservative portfolio with 50 percent cash reserves and the rest allocated to unleveraged stocks, or 50 percent cash and the rest leveraged at5 percent margin in futures, then the impact of a price shock will be:Portfolio PortionAllocated toThis Position
Size ofPrice Shock(Not Leveraged)
CorrespondingDrop in StockPortfolio
Corresponding Dropin Futures Portfolio(5% Margin)
50%(Maximum exposure)10%
3%30%3%30%
1.5%15.0%.3%3.0%
30%300%6%60%
The stock portfolio has no problem absorbing a 3 percent equity drop ina worst-case scenario when only 10 percent, or V5 the available tradingcapital, is exposed to one correlated group. Even the 15 percent loss isunpleasant but not fatal. Futures is another story. Mostly traded withhigh leverage, a portfolio is rarely prepared for a large adverse pricemove. The most conservative futures portfolio, with 5 assets allocated10 percent each, and 50 percent in reserves, still lost 6 percent on a 3 percent price drop.Eliminating Price Shocks fromSystem PerformanceDuring the testing of a new strategy, most traders and analysts eliminate the losses due to price shocks, or gain from their moves, withoutbeing aware of it. They can• Select the most profitable system from an optimization test.• Luckily miss being in the market during a shock.• Test data that did not have significant shocks.In the enthusiastic search for a great trading system, traders wouldselect the system that performed best over historic tests. They are notcritical of a system when there are profits. If a 25-day moving averagehad resulted in a long S&P position on the Friday before Gorbachev wasabducted, it had large back-to-back losses over 3 days. A 5-day trendmight have just entered a new short or closed out a long that day, andwould have benefited from the shock.Selection of the wrong system parameter can happen when youchoose only the best results (i.e., as is automatically entered using aTeleTrac optimization). If the slower system netted a 5 percent return
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Box 7-1. THREE CLASSIC PRICE SHOCKS1. The Kuwait invasion in August 1990 found most traders long(Figure 7-3(a)). The possibility of sustained oil shortages movedprices steadily higher. The U.S. retaliation in January was still anunknown, and the sharp reversal proved that the market's reaction was a surprise to traders (see Figure 7-3(b)).
(a)
(b)
Figure 7-3. Kuwait price shock, (a) Iraq invades Kuwait, (b) The U.S. retaliates with Desert Storm.
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with 20 percent risk, while the faster program returned 4 percent witha 6 percent risk (due to large losses during the Moscow coup), the numbers make clear that the faster program is more desirable. No onewould immediately pick the system with lower profits and higher risk.What really has happened? By picking the system that profited fromthe coup, you have unconsciously assumed that you could predict aprice shock. But that's impossible. Therefore, your conclusion is notvalid. That is not to say that the slower system was better. At this point,we really do not have enough information to tell, because the test resultsare too distorted by incorrect assumptions.
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Box 7-1.
Using Old and New Trading Tools for Reasonable Objectives
(Continued)
3. The political coup in Russia on Sunday, August 16, caused a uniform pattern in Forex, oil, and equity markets. The S&P (Figure 75(a)) moved opposite to a trend position, crude oil would havecaused new longs to be set (Figure 7-5(b)), and the Deutsche mark(Figure 7-1) would have profited. However, they all would haveposted large losses when markets reversed two days later, afterGorbachev's release.
(a)
(b)
Figure 7-S. Political coup in Russia, (a) The Moscow coup causes a sharpdrop in the S&P. (b) Oil prices rally on expected supply Interruption In Russia.
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Short Tests May Not See ShocksSome systems are evaluated over recent data because older prices donot seem representative of current market conditions. The EuropeanMonetary System (EMS) has changed the spread relationship betweenthe exchange rates of member currencies. By creating limits, prices aresupported and patterns are different from pre-EMS data. Short amountsof data have the disadvantage of not having enough price patterns todevelop a robust trading model. They may show only a bull market, ora few small price jumps. It would be unusual to see a large price shockin a small data sample.Frequency of Price ShocksYou might think of every price change based on news as a price shock.Markets are filled with little jumps because of unexpected events suchas periodic reports on unemployment claims, corporate earnings, anunexpected charge, Federal Reserve or Central Bank shifts in monetarypolicy (never announced in advance), trade balance, announcements ofnew government policy, crop estimates, daily marketing of livestock,amount of rain in the Midwest, or cold in the northern hemisphere. Thedifference between the market's anticipated assessment of a piece ofinformation and the reality of the event causes a price shock.Most price shocks are small. Often, the relative accuracy of marketanticipation to the released information obviates a change in price.Sometimes, the difference between actual and expected is unimportantin light of other effects attracting the public's eye. After three years ofprolonged recession (beginning in 1991) and steadily lower interestrates, a worse unemployment number is not as important to the marketas a Consumer Price Index that signals possible inflation.Only the bigger price shocks attract our attention, even though smaller jumps occur frequently. Being unpredictable and frequent, shocksoccur in a pattern (or lack of pattern) very similar to a random distribution. There are many small shocks and a rapidly decreasing number oflarge shocks.Gaps and Ranges. Figure 7-6 shows the frequency of opening gapsand daily trading ranges and compares the S&P with the Deutsche markfor the 10 years ending with 1993. The inset chart begins with gaps andranges of 0.5 percent; however, the frequency drops off quickly and thesmaller number of large percentage moves cannot be seen. The largerchart shows only those 1-day gaps and ranges above 3 percent of the current price. These values can be seen exactly in Table 7-1.
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Figure 7-6. Frequency of price shocks. The comparison of S&P and Deutschemark price shocks shows that the Deutsche mark has many more gap openings,while the S&P has much larger dally price ranges. The frequency of these larger gapsand ranges points out that price shocks and uncontrolled risk occur more oftenthan we would expect.
Table 7-1. Frequency of Price Shocks (January1983-June 1993)Size ofMove (%)
S&PNo. of Gaps
S&PNo. of Ranges
DMNo. of Gaps
DMNo. of Ranges
0.51.01.52.02.53.03.54.04.55.05.56.06.57.07.58.08.59.09.510.0
2963307642461231300000000103375
1181273106951021994411910920211213013375
25726221333410220010000000000
8241728581164481975000000000000
3376
3376
Total
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The patterns in Figure 7-6 are different for the two markets. The S&P,a U.S. domestic market, shows very few opening gaps compared withthe Deutsche mark, which is actively traded 24 hours a day. (This is discussed in Chapter 11 in the section "Overnight Risk.") The S&P alsoshows much larger risk, with one gap of 9.5 percent and 51 daily rangesabove 4 percent; the Deutsche mark had only 5 for the same period. TheS&P was 10 times more likely than the Deutsche mark to have a price shockgreater than 4 percent.The implications of this are important. There are 51 of 3375 days (onaverage, 4 days each year), in which a price shock in the S&P will occur.From experience, we know that these are likely to be clustered together;therefore, we can assume that once each year there will be a volatileperiod of 4 days. One year, that move might be profitable, and the nextyear it might generate a loss. In either case, a 4 percent range is a 40 percent swing in equity for futures traders, based on margin.The chart shows that large gaps and ranges will occur periodicallyand will be large enough to represent a problem. Individually, the risksmight be absorbed within a well-diversified portfolio, but in reality,price shocks often affect a broad range of markets and assets at the sametime.Why All the Fuss?During testing, many trading program do not distinguish a price shockfrom other moves. By applying special combinations of rules, andselecting the best trend speed, the trading program can successfully beon the right side of the market whenever a major price jump occurs. Itwould be easy for a computer to scan stock market historic prices andidentify a pattern of extreme drops. A system that sold stocks on everyFriday, during the last half of October (from 1929 through 1993), covering the position on Monday afternoon, would have made a fortune.Although most trades produced a small profit or loss, a few majorplunges overwhelmed the result.What is wrong with this approach? You are collecting, classifying,and creating rules to take advantage of price shocks that are unpredictable. You are attributing special traits to events that, by definition,have no traits. In general, if you have developed a system that did notshow a large loss, you have done something wrong.Using Stops for Risk ProtectionIn addition to a reduction in expected profits, the inability to identify ahistoric price shock affects risk control. You cannot assume that a price
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shock would produce a profit, and you cannot assume that a stop-losswould have saved even part of a loss. Resting stop-loss orders tend tobe filled at the worst place, and visual stops are too slow to be effective.• A stop cannot get you out of a short position that is limit bid, or astock that moves quickly after a news release.• A stop will get you out at the worst price when the market begins totrade.• In historic testing, a stop cannot tell that an intraday shock causedprices to jump through the risk level and that the order was at thehigh of that interval. (It is always safe to assume that you were filledon a buy at the high of a 15-minute range, or sold at the low of a 15minute range.) A computer system that assumes a fill during anintraday shock presents unachievably good results.• A "fast market" exists during a price shock and price quotes run lateon the screen. A visual stop could never cut losses because the eventcould be over before it appears on the screen.It would be comforting to place the stop in advance and expect that execution price, but an occasional shock is nasty, and a stop-loss rarelyimproves risk control.Key Price Shock ConceptsRisk is always higher than expectations because historic testing (eithercomputerized or manual) does not distinguish between data that can beused to forecast profits and price shocks that cannot be predicted:• You cannot know which shocks would have been in your favor, orwhich would have resulted in losses.• You cannot know which days contained intraday price moves thatwould not have allowed a stop-loss or a new trade entry to be executed at a reasonable price level.• Many small price shocks that result in bad executions are much moredifficult to recognize when only historic price data is available.
Handling Price ShocksSo far, price shocks paint a dismal picture. They cannot be predicted,many of them cannot be seen afterward, and they can generate devastating losses. The comforting thought is that, when you accept theuncertainty of price shocks and do not assume profit opportunities, you
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know the worst case of risk. This is not necessarily good, but it is a safeway to evaluate trading and investment returns. Believing that a systemhas less risk will lead to more serious problems.Guidelines for Assessing RiskThe following guidelines will help you avoid mistakes and assess riskmore accurately. These points will not identify every price shock, nor isit likely that the final risk level will be as great as the real risk of trading, but it should be very close:• More test data gives more realistic results. Larger periods of test data contain a greater variety of price patterns and more price shocks.Parameter selection based on longer tests tends toward the longer-termforecasts and slower trends. These can better absorb the effects of priceshocks. Faster trading strategies must show profits from price shocks,in order to prevent losses from appearing disproportionately large. Theexpected profits of a longer-term system may be lower, and the riskhigher, than a faster trading method, but the real trading results aremore likely to be similar to the slower system, and may vary far fromexpectations of a fast system.• Use Zess data for parameter selection and more data for risk evaluation. Ifolder data is hot representative of current market conditions, it maybe more reasonable to select parameters based on a short test period.Once those parameters are fixed, test a longer set of old data to get abetter evaluation of risk. It is not possible to find all the risk from asmall test sample. Use the old data to show more patterns of volatility and risk, and recent data for trend timing and profit patterns.• Find a worst case scenario in past prices. It is not difficult to look at pastcharts to see obvious price shocks. Look for the largest price moves,then consider a worst-case scenario to evaluate the risk. It is safe toassume that what has happened before will happen again.Creating an Artificial Data SeriesA valuable transformation of data can give realistic system test results.It will be necessary to use a computer to do the following:1. Scan the historic daily data and remove the data for the day a priceshock occurred, plus the next two days of data. The day of the shockcan be identified by a large opening gap or an unusually large trading range. You can select different size shocks by requiring the opening gap or trading range to be 3, 5, or even 10 times larger than theaverage gap or range.
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2. Create an index of prices without,the 3 days of data associated withthe price shock. This will close any gap created by the elimination ofdata and change all the prices to percentage changes.3. Test the trading strategy using the gap-adjusted series. This will resultin parameter selection that does not try to profit from price shocks, orassume that it could be stopped out at unrealistic levels. It will produce a system that works in a "pseudo-normal" market (although"normal" must really contain price shocks).4. Run the trading strategy with the selected parameters through theoriginal data series, including all price shocks. The results should besimilar profits, but much larger risk. Half of the shocks should havegenerated profits, and the other half large losses. If you find thatthere were no shocks that caused losses, then use the profitableshocks to indicate the magnitude of the potential losses. It should beconsidered simply good fortune that a few shocks occurred in thedirection of the current position; in real trading it could be reversed.You should manually evaluate the size of the past price shocks andassume that it represents future risk.You now have a realistic set of return and risk values to decide themerits of the system and the investment necessary to trade it successfully. The parameters selected for "normal" markets should return moreconsistent profits, and the final risk figures will give a realistic idea ofthe effects and frequency of price shocks. By removing the price shockdata, the optimization process will never be able to fit parameters sothat they profit from an unpredictable price shock.The clear identification of price shocks which was used to create agap-adjusted series also allows you to automatically recognize the sameshock as the system during actual trading. When the shock occurs, youcan change rules and treat the situation as a special case. Box 7-2 givesthe FORTRAN code for creating this series. More on adjusting data canbe found in Chapter 10.
Managing a Price ShockYou are going to take a big profit or a big loss from a price shock. Becauseyou cannot predict when it will happen, you must assume that you willbe holding a position, either long or short. We have discussed the use ofa stop-loss to reduce risk and believe that a resting Stop order is morelikely to capture the worst possible price. Then what are the choices?You could hold a trade or exit it after the shock with a large profit orloss, whichever occurs. Because you can automatically identify a price
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shock on a computer, you can also test special strategies. For example,if the price shock is up, set a long or short position on the close, depending on the type of shock, then exit one or two days later (see Table 7-2).You can determine which shocks tend to continue and which reverse. Ifthere are enough cases you can develop a clear price shock strategy.Qualifying the ShockThere is a logical, accepted strategy to managing a price shock evenwithout computerized testing. First, you must qualify the situation. Ifthe price shock was caused by a fundamental, structural change, thenonly a small reversal should be expected. An announcement to raiseinterest rates Vt percent by the Central Bank means that bond prices willfall to the new level. If a V2 percent increase was expected, prices will rise.It is not an issue of anticipation, but of fact. Interest rates are more definitive than most other news. Putting a price on the Gorbachev coup, planting intentions, retail drug prices, or a new national health program is notas simple. While most price shocks move further than necessary, a structural change means a permanent price shift. Some correction is normal,but a continuation of the new direction is also possible. Opportunities forrecovering losses from a structural change are small.Political news, natural disasters, and rumors dominate most otherprices shocks. Assassinations are tragic but do not necessarily affect thesafety or economy of a nation. Hurricanes, droughts, floods, and freezesdevastate small countries and regions but rarely cause a substantialchange in total supply. In the past, a freeze in Florida caused orangejuice prices to soar; now, any shortfall in supply is happily filled byBrazil. Price shocks that cannot be confirmed or cannot be translatedclearly into a price change are likely to move too far, too fast. Thesemoves allow traders to recover a substantial part of their losses.The Shock Is in Your FavorWhen a price shock gives you a windfall profit, the position should beclosed out immediately. Even though a structural change is likely toshow additional profits, the increase in risk is greater than the potentialfor further profits. If the shock causes a loss, the position can be managed to recover part of the loss.Figure 7-7(a) shows a price shock with some fundamental basis.Prices move sharply higher, then start a volatile, erratic decline. A shortterm and long-term trend are shown as (1) and (2). Because prices movefast, system (1) cannot exit. The short trend would have been stoppedout at the high, reversed to long and been stopped out again in a few
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Box 7-2. CREATING A "SHOCK-ADJUSTED"PRICE SERIESThe following code to create a gap-adjusted and shock-adjusted seriescannot be done using TeleTrac, Easy Language, or spreadsheets becausethe new data series is shorter than the old one. The following code inFORTRAN reads the original data series OLD and creates an adjustedseries NEW.SUBROUTINE GAPADJ(PERIOD,GFACT,TRFACT,RDAYS)C— "GAPADJ" subprogram for removing price shocksC— PERIODthe number of days to determine normal price movementC— GFACTthe relative size of the overnight shock versus normalC— TRFACTthe relative size of the intraday shock versus normalC— RDAYSthe number of days to remove including the day of shockPARAMETER(max$ = 500)INTEGERDATE(max$),RDAYSREALOPEN(max$),HIGH(max$)>LOW(max$),CLOSE(max$),+TRANGE(max$),GAP(max$),INDEXIF(RDAYS.LT.1)RDAYS = 1C— Open input and output filesOPEN(10,FILE = 'IN')OPEN(11,FILE = 'OUT)C— Initialize output countN=1C— Read original input data10 READ(10,1000,END=50)DATE(N),OPEN(N),HIGH(N),LOW(N),CLOSE(N)1000 F0RMAT(I6,4F8.2)C— Start output file on day of full periodIF(N.EQ.1)THENNX = 1INDEX(NX) = 1000.WRITE(11,1100)DATE(N),INDEX(NX)1100 FORMAT(l6,F8.2)ENDIFIF(N.GT.1)THENNX = NX + 1INDEX(NX) = INDEX(NX) + ABS(CLOSE(N)-CLOSE(N-1)/CLOSE(N-1)C— True rangeTOP = HIGH(N)BOT = LOW(N)IF(CLOSE(N-1).GT.TOP)TOP = CLOSE(N-I)
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IF(CLOSE(N-1).LT.BOT)BOT = CLOSE(N-I)TRANGE(N) = TOP - BOTC— GapsGAP(N) = ABS(INDEX(N) - INDEX(NM))ENDIFC— Test for a price shockIF(N.GT.PERIOD + LAND.+(GAP(N).GT.AVGGAP*GFACT.OR.TRANGE(N).GT.AVGTR*TRFACT))THENC— Skip RDAYS + 1DO 301 = 1,RDAYSPRIOR = CLOSE(N)READ(10,1000,END = 50)DATE(N),OPEN(N),HIGH(N),LOW(N),CLOSE(N)30 CONTINUEINDEX(NX) = INDEX(NX) + (CLOSE(N) - PRIOR)/PRIORWRITE(11,1100)DATE(N),INDEX(NX)C— If enough data, calculate average range and gapIF(N.GT.PERIOD)THENSUMTR = 0SUMGAP = 0DO 20 I = N,N-PERIOD+1,-1SUMTR = SUMTR + TRANGE(I)20 SUMGAP = SUMGAP + GAP(I)AVGTR = SUMTR/PERIODAVGGAP = SUMGAP/PERIODIF(N.LT.max$)THENN=N+1GOTO 10ENDIFSTOP 'Data too big for array. Increase max$ and rerun.'50CLOSE(10)CLOSE(11)RETURNENDIdentification of a price shock once the factor has been determined:IF (open > @AVERAGE((@ABS(open-close[1])/close[1]),period)*GapFactorOR ©TrueRange > @Average(@TrueRange,period)*RangeFactor) THEN
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Table 7-2. Price Shock CharacteristicsStructural ChangePattern
Temporary Panic
• Volatile, quieting quickly• Continued volatile• Likely to produce more profits, • Likely to reversebut incremental risk greaterthan profits• Small reversal• Large reversal
If a profit Close out the tradeClose out the tradeif a loss Wait for a small reversal to exit Wait for a 25% to 50% reversal or addto the position to recover more than50% of the loss
days. The slower trend gets a windfall profit but gives back one-thirdbefore getting a trend reversal signal.After the price shock, both fast and slow trends are catching up to theprice jump while in Figure 7-7(a) prices have actually reversed direction. Itis difficult to say that we are "following the trend" when the trend endedwith the shock. This was exactly the situation following the 1987 stockmarket drop. Sensible management requires that trend positions be closedout after a windfall profit. If the change is structural, the position may bereset, but in most cases it is best to wait for a new trend signal to re-enter.Figure 7-7(b) depicts a structural change. Although prices continuehigher, the faster trend system is stopped in and out because of highervolatility. The slower trend would have increased profits before encountering the same sideways period. Both strategies, however, would havebeen improved by taking profits immediately after the price shock.Risk ReductionPrice shocks are accompanied by high volatility. By taking profits assoon as possible, you would not be holding a position during the periodof increased risk following the first price peak. Even though a structuralchange produced more profits when the trade was held, the risk (measured by the volatility) was far greater than the marginal profit gained.Once this equity fluctuation is part of performance, it cannot be erased.Focusing on low risk translates into higher leverage and greater profits.The Shock Produces a Large LossOnce the price shock hits, and you are on the wrong side, risk is nolonger an issue. The most important concern is to find the best chance for
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(a)
(b)
Figure 7-7. Trading price shocks. (1) Trend-following where theshock is a loss, and (2) Trend-following where the shock is a profit.
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recovering part of the loss. If the change is structural, you can expectonly a small recovery, and the risk of further loss may be just as high.Timing is important. A professional trader can monitor the market, waiting for a sign that trading is quieting and the surge of orders has beenfilled. Whatever correction is likely will come at this time. Afterward,prices may again move in the direction of the shock. A longer-term trader, who may have seen the shock only after the close, would do best toget out as soon as possible, as long as the market is actively trading.A temporary event that is likely to reverse can be managed in two ways.A conservative trader may hold the original position and wait for a reversal to exit, expecting a 10 percent to 30 percent recovery. It may be closedout after one day if proved wrong and prices reach new ground, or if thereason for the shock appears to become structural. A more aggressivetrader may double the original position, looking to recover 20 percent to60 percent of the losses. In neither case should you expect to turn a lossinto a profit. This is entirely a defensive management strategy.Management ObligationsTraders often feel that they have an obligation to follow their system nomatter what the circumstances. It is true that, if the rules are strictly followed, it is easy to explain why things went wrong. Deviating from theplan, and subsequently losing more, will be embarrassing to explain.Offsetting the rigid systematic approach is the concern that it is notreasonable to follow a "trend" when prices are moving in the oppositedirection after a price shock. To resolve this dilemma, record the following list of clear rules to use when a "price shock day" is identified:1. Identify the shock. A price shock occurs when a gap or trading rangeis greater than a threshold value.2. If profitable, then take profits and wait for a new trend signal.3. If losing, then hold losses for one day after market trades. Exit if a newextreme price, a 50 percent reversal, or a contrary trend signal occurs.Using two clear sets of rules, a manager can justify the proper responseto a price shock.Long-Term Systems Are MorePredictable Than Short-TermSystemsWhen choosing a trading strategy, remember that the longer-term,slower systems are more likely have returns similar to their historic test-
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ing and expectation. Because the tests cover a long time period, theyinclude more price shocks, more patterns, and more risk. They generatelarger profits by holding the trade for longer periods; therefore, a priceshock does not seem as important or disruptive to performance. The relative size gives it a chance to absorb the shocks. It is difficult to add ashort-term rule to a long-term system for the purpose of eliminating aprice shock. Short-term rules tend to change a slow trading system to afast one, including large periods of being out of the market.
SummaryWe prefer to trade a system which we perceive as having low risk, butwe often create larger risks by unrealistically assuming that we canprofit from price shocks. This leads to undercapitalized accounts andunpleasant results. A price shock affects all trading the same way,whether you are a short-term or long-term trader, a trend-follower or acountertrend trader. If a government report causes the yen to jump 300points, all trades will be affected. It only matters whether you are longor short when the price shock hits. However, in the total performanceprofile or in a fully diversified portfolio, the effects of a shock on alonger-term view will be less dramatic.By accepting the uncertainty of price shocks, you can implementalternate trading rules to limit further risk and possibly recover someloss. Once the price shock hits, it triggers a new plan. Trend-followingsystems do not apply to a market that has just experienced a structuralchange, no matter which direction prices move.Understanding the real risk of trad