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What To When You Start The Day In The Red

Following up on a trend that we’ve been seeing throughout the past few weeks, the market continues to be consistently inconsistent.

Benzinga · 08/17/2020 13:05

Following up on a trend that we’ve been seeing throughout the past few weeks, the market continues to be consistently inconsistent. What I mean by that is, I’m still seeing days with huge homerun trading opportunities that are followed up by absolute chop.

Last week was no different, starting out Monday with a massive premarket move in Seres Therapeutics, Inc. (NASDAQ:MCRB) that netted me $90,000 on the day only to follow it up on Tuesday with a series of trades in stocks like Eyenovia, Inc. (NASDAQ:EYEN) and ProPhase Labs, Inc. (NASDAQ:PRPH) that just fell apart once the bell rang. While I was able to weather those losses thanks to some premarket trades I made in EYEN, it was just a slog getting through the trading session with a decent profit.

Then came Wednesday and Thursday, my first consecutive red days in more than four months.

Wednesday saw me start the day with a -$25,000 loss in Monopar Therapeutics Inc. (NASDAQ:MNPR) that I then spent the rest of the day trying to recoup. I ended up cutting the loss down to -$11,000 before throwing in the towel.

Thursday was a similar scenario, with a premarket trade in FAT Brands Inc. (NASDAQ:FAT) that set me back -$14,000 before the day even started followed by an opening bell trade in India Globalization Capital, Inc. (NYSE:IGC) that put me another -$17,000 in the hole. Again, I spent the remainder of the day mitigating my early morning losses to end up with -$12,000 in gross profit.

If I was a newer trader without the capital reserves I’ve managed to build up in my trading account, either of those trades might have ended my career in an instant or even forced a margin call if I was being really reckless. And honestly, both of those trades were needlessly aggressive on my part. I bought in too high with way too many shares to justify the risk.

But opening in the red is something that will happen to every trader and, whether the loss was a result of overconfidence or simply bad luck, traders need to reckon with the risk/reward proposition of continuing to trade themselves out of the hole or cutting their losses.

This is where setting rules and guidelines for your trading can come in handy. Establishing max loss parameters and sticking to them is the best way to make sure you don’t succumb to the sunk cost fallacy. This also means remaining aware of the funding in your account as well as considering your trading statistics. Knowing how much you can afford to lose and your track record for gaining it back will help to keep you honest about your chances for the rest of the day.

Of course, that means having good opportunities to capitalize on, something that I believe is becoming more scarce as the dog days of summer roll in. While I hope things turn around as August gives way to September, I may need to pump the brakes on my share size quick keys or else I might start seeing more back-to-back red days.