Geopolitical shocks are the ultimate test of a trader’s discipline. They arrive without warning, often gap the market, and trigger an immediate emotional response to "sell everything." In the short term, I expect volatility to remain high as the market digests the headlines and seeks a new equilibrium. However, when we look past the initial noise, the long, term outlook remains remarkably resilient.
The Initial Shock vs. The Recovery
Historical data consistently shows that while geopolitical events cause immediate sharp sell, offs, they rarely result in long, term structural damage to a bull market. The market has a way of pricing in the "worst, case scenario" within the first 48 to 72 hours. A study by Ryan Detrick of major geopolitical events dating back decades shows that the average one, month return following a shock is often flat to slightly down, but the six and twelve, month returns are overwhelmingly positive. Once the initial panic subsides, the focus shifts back to the primary drivers of growth: earnings, interest rates, and institutional money flow.
https://x.com/RyanDetrick/status/2027848429850841451/photo/1
Navigating the Turbulence
For a long/short growth manager, the strategy during these periods is not about predicting the news, it’s about managing the reaction.
Stick to the 1% Rule: Geopolitical gaps are exactly why we limit our total equity risk to 1% per trade. If a stock gaps below your stop, loss, your position sizing should be small enough that it doesn't break your fund.
Avoid the "V-Bottom" Chase: Volatility often stays high for several weeks after the initial event. We look for Volatility Contraction (VCP) to return before we ramp back up to full exposure. We need to see the "coiled spring" setups, not just a frantic bounce.
Focus on Relative Strength: Watch which stocks and sectors refuse to go down during the panic. Those that hold their 10, day or 20, day moving averages while the broad index is in a tailspin are often the leaders of the next leg higher.
The Bottom Line
At Worch Capital, we respect the short, term volatility but we don't let it blind us to the long, term trend. History is on the side of the patient investor. If your strategy and risk management are sound, these events are not disasters, they are simply the "retesting" of your discipline. We stay light, we stay alert, and we wait for the market to prove the "regime" is ready to resume its upward path.