While the magnitude of the spike was not as much as the one occurred during the BREXIT vote counting day in June, but the manner it crashed in less than 5 minutes, with various brokers giving various lows was something that I believed had caught most traders shocked and unaware. Some blamed this was due to thin liquidity, the auto trading algorithm errors, as well as others are pointing to the 'fat finger' tradings. You can read on this at most other websites so no deliberation is required here. Bloomberg is my favorite by the way.
Though GBP had been stumbling since weeks before, and keep on heading south for the rest of the 1st week of October, no one would have thought that it could go even lower than 1.2600 on that Friday alone.
Personally, I was speculating that the market would take it easy for the day since normally, prior to NFP released, market would technically correct itself with some profit taking and some significant retracement should be seen. Yes all of us knew the bearish trend for sure, but as experience had taught us all, it sure cannot go south all the way since technical correction was believed to be inevitable.
Further to that, with SSI extremely rated at 90% long against 10% short, RSI at severely oversold condition at almost all time frame (e.g. -20 at H4 timeframe), price at the lowest level since 1985, it was widely expected that the spike would have been in the bulls favor (at least) instead of the bears.
But early Friday morning, the seems impossible thing happened when market spiked down to over 1000 pips on certain brokers chart within 15 minutes after the Tokyo opened. My stops was severely hit (100 pips below than my setting, meaning 200 pips instead of 100) and I was left in the dark on what could have happened that brought to such a flash disaster. Yes, it was like tsunami indeed.
You see, this is in fact a very good example that anything can happen in the market. If there is no risk control for such an extreme event, anyone could have been wiped out from the market especially if you are holding a big position relative to your account size.
Nevertheless the night before, somehow there was a funny feeling that told me that this could happen. All the technical indicators were showing strong bearish conditions, no doubt. But the internal psychology had failed me by keep on pouring fear and culprit believe that the market was about to reverse, at least temporarily and that was the key reason on why I was going long for the GBP/USD, trying to pick bottom in which to me, was technically justified.
But see for yourself, no one is protected here. Perhaps it is a good lesson to me as well as the rest of market's participants.
In summary:
1. Know what you are doing, especially the risks involved.
2. Picking bottom is highly risky, regardless what the technical probability was showing.
3. RISK Management is everything. You decide your risk tolerance upfront and get ready to be wrong.
4. Once the previous support broken (i.e. 1.2795), the market can be bottomless for quite sometimes until it finds a new bottom or support.
5. Sentiment can overrule technical, as well as technical can overrule sentiment. In this case, the fear of "HARD BREXIT" sentiment (or whatever the market wants to call it) seems to make its point very clear on how useless the technical indicators could be and how vulnerable sterling is in the coming months.
6. On this case, the FEAR factor is really showing its dominance, driving the sterling to 'yet-to-be-seen' bottom in my honest opinion.
7. It is not easy not to get fully unemotional when you were caught in such situation. Lost is a lost and you just have to accept it. And yes, learn from it as well.
Have a Nice Week Ahead!
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