I’ve been looking into tail risk. It seems like it can lead to huge losses quickly. I’ve had bad trades, but nothing extreme. Should I really be concerned about this risk, or is it overhyped? Trying to understand if I need to adjust my trading strategy.
Lost 40% in one week during March 2020 crash, that’s tail risk hitting hard.
Low probability events can wipe out months of steady gains quickly. March 2020 and the Swiss franc unpegging are good examples. My approach is straightforward: never risk more than you can afford to lose on a single trade. Keep position sizes manageable so that unexpected events won’t derail your trading. Many traders become complacent during stable times and take bigger risks. This is when tail risks can catch you off guard. It’s better to aim for consistent, smaller gains rather than risking everything on one unpredictable event.
March 2020 taught me tail risk the hard way when I lost three months of profits in two days.
Now I never put more than 2% of my account on any single trade. That painful lesson made me realize these extreme moves happen more often than we think.
Your strategy definitely needs position sizing rules because one bad tail event can end your trading career.
Tail risk represents extreme market moves beyond normal distribution. Black Monday 1987 dropped 22% in one day.
• Position sizing limits exposure
• Stop losses reduce damage
• Diversification helps
Rare events cause 80% of major losses. Worth planning for.