Effects of Black Swan Theory on Stock Market

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The importance of this theory comes to light when we understand the effect of what can the highly improbable bring about in the best trading terminal. Sitting here in 2016, the best instance of understanding the Black Swan model is the crash of 2008 housing market in the United States. It takes into account the occurrence and effects of the most unlikely events which may even be beyond the sphere of history, technology and science. Given the accessibility of the technology, it should be hard to keep a track of such events using the best trading app for smartphones.

The major characteristics that define the base of this theory are the fact that their impact is enormous while the fact that they will occur comes as a total surprise. The ramifications cannot be ignored and they play a much larger role in situations than what one would normally predict. And that makes a case for understanding how this theory would affect the investments, stock markets and the human behaviour in general.

The ability of non-determinability of these events is the fact that rareness of such events has zero level of matchability with scientific ways, leading people to develop a kind of one-sidedness towards the same and eventually becoming ignorant about it. In terms of investments and financial markets, there are certain factors like the price of oil and the counter prices of other stocks that will surely have an affect on a particular stock. These are calculable and predictable. But what about an event like a natural disaster, the consequences of which are huge and so dangerous? The impact of such an event is expansive, yet nothing that will be predicted in the normal course of the day. Consulting the best online broker India can help you fish out of the situation.

Now that it is understood that the effect of a Black Swan is tremendous, it is imperative to strategize well on how one can cope with such a circumstance. When it comes to stock markets, it needs to be realized that developing a fool-proof strategy based on past experiences will only be fruitful to an extent. But for Black Swan like occurrences, it is not a wise deal to rule out the power of common sense and intuition. There are times when the most gigantic events like a market crash can be coped well with the help of intuitive thinking rather than well-thought strategies. Hence, there must always be room for flexibility to get through instances that have occurred not because of the most expected possibilities rather than events that are remotely related or extremely rare to come by.

The Black Swan Theory was developed by former Wall Street trader turned financial writer, Nassim Nicholas Taleb, post the 2008 period of financial crunch. This theory basically illustrates the occurrence of events that deviates from what is usually expected out of a situation. In other words, it is about a situation that is extremely hard to predict. It is elucidated that the Black Swan events are almost impossible to predict but that does not imply that they don’t have any dreadful consequences. And thus, it is always advisable to have a plan for a particular situation keeping the possibility of a Black Swan event in mind.

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