When someone like Martin Shkreli is arrested, markets reel. That is exactly what happened on Friday, when the Dow Jones Industrial Average fell by more than 360 points, a drop of 2.10 percent. Shkreli has been in the spotlight for the last few months because of the fact that a drug created by a company he is CEO of boosted prices from around $13 per pill to $750.. This was a lifesaving drug, and Shkreli received a ton of public criticism because of this. He’s also been a very vocal presence in social media and this has not helped his public image at all.
In the case of Shkreli, his arrest had nothing to do with his price manipulation, but rather it was related to securities fraud that supposedly occurred at a hedge fund he managed prior to his current post. The most interesting part of this is that much of this fraud happened three or more years ago, and therefore, the damage that was done is long in the past and doesn’t really have any actual bearing on how the Dow–or any other index for that matter–should be performing today. So, as you might have guessed, this is purely a kneejerk reaction to bad news on top of even more bad news.
Another thing to consider is the fact that there’s a very good chance that markets will rebound quickly from this. Yes, Shkreli’s missteps hurt things, but a drop of more than 2 percent in a major index is a lot, no matter how much bad news has been piled up beforehand. However, the securities fraud issue is a small drop in the ocean of the U.S. economy, even if it was for the reported $65 million that claims top out at. There is a lot here that needs to be sorted out in court, and guessing at what actually happened right now is pure guesswork. He’s currently out of jail on a $5 million bond.
Of course, this drop is not entirely because of Shkreli’s alleged actions. The market has already been fragile, and this was just one more piece of bad news on top of everything else. When markets are unstable like this, technical indicators lose much of their predictive value. This is a big issue for short term short term traders as this is the tool that is most heavily relied upon. There is, of course, a good reason to rely heavily up technicals, but as you can see, they are not foolproof. In fact, technical indicators are only as stable as the market that they are being used in.
In this case, we can see that markets are unstable and that volatility is high. There are technical indicators that acknowledge this, even. Using them can give you an approximation of how much risk you are taking on just by doing what you usually do when trading, and if that risk level becomes too much for you, then you should either stay out of the marketplace for the time being, or you should take extra precautionary measures to protect yourself from the increased volatility. There are tools that are more effective than others when it comes to trading in unpredictable markets, and the better you are at knowing how and when to use them, the better trader you will become. This goes for any type of trading, be it day trading stocks and ETFs, the Forex market, binary options, or commodity speculation. Risk is present everywhere, and the more you can minimize it while maintaining high levels of profitability, the more money you will make with less risk of ruin.