Trading on Friday?
Yes that's a question for each and every one of you. Much to the chagrin of many of my regular readers, I'm not going to say one word about any sort of trading strategy today. No charts, no technical studies, no theories about new and exciting entry/exit techniques. No, I'm going to talk about something FAR MORE important.
Widely known as one of the lightest trading days of the year, the day after Thanksgiving (November 29th this year) is not what I would call a high odds trading session. I understand that many of you are loathe to miss a minute of live market action, especially on a day that has a historical upward bias. But trading a historical bias is a thin justification for a trade.
Most traders I know are wrapping up operations by midday today and not taking a peek at the markets until the opening bell rings on Monday. At least in the U.S., this extended weekend is a gift that we take full advantage of in order to reflect on the many things for which we have to be thankful, not the least of which is a free market that we can use as our own personal printing presses once we learn how it works. Like any other piece of machinery, it requires regular lubrication and maintenance, accomplished during scheduled periods of down time. This extended weekend should be blocked out on your calendar as mandatory downtime, whether you observe the Thanksgiving holiday or not. If you do observe the holiday, then the next few days should be filled with family, friends, food and fun -- anything, so long as it rejuvenates you and isn't related to the markets. And if you don't observe the holiday (for whatever reason), then the next few days should be filled with family, friends, food and fun. Notice the parallel? We all need time away from the markets in order to recharge our batteries. Since the market is closed on Thursday and only open half a day on Friday, this is a perfect opportunity to accomplish that "task".
So let me pose the question again -- Are you trading on Friday? Those of you that answered in the negative have clearly learned from the Options 101 article I wrote a few months back in early July entitled "Options, Priorities and Balance", where I gave a real-world personal example of maintaining balance and harmony in life. You don't need to read the rest of this article.
The rest of this article is for those of you that are still planning on trading on Friday. You may think I'm being overly dramatic here, but if you do not establish a habit of regularly taking some time away from the market, you'll either burn out or eventually blow up your account. This is a topic that I think gets far too little coverage in our industry, so I'm endeavoring to make my contribution to correcting that oversight.
If you're planning on trading on Friday, then in my opinion you fall into one of two categories:
1. You have no open positions, but are hoping the day provides a profitable trading opportunity.
2. You have open positions, which are either underwater or profitable.
There, that's pretty simple, isn't it? Let's deal with the first group, as it is the easiest. We've already covered that the session is likely to have light volume, which usually leads to a lack of directional moves, and hence a dearth of profitable trades. If in light of that information, you still want to sit in front of your computer in search of profitable trades, then I would submit that it is entirely possible you have an addiction problem with respect to the market.
If you can't step away, even when the odds are not in your favor, that smacks of a gambler's mentality and I would strongly suggest you need to re-evaluate your priorities. The market has provided solid trading opportunities since long before each of us became involved in this business, and will continue to do so long after we are gone. Is one day going to make a measurable difference in your profits this year? Would one day of leisure make a difference to your 6 year-old daughter, spouse or your parents? Only you can answer those questions, but I think you know the answer. If not, why don't you ask your daughter, spouse or parents how they would prefer you spend the day.
Alright, now lets talk about the group that has open positions that they feel the need to watch on Friday. First up, the positions that are currently profitable. The solution here is simple. Either close the trades for a profit or set a stop that fits with your own risk profile. Isn't that easy? Let the process take care of itself so that you can enjoy a bit of down time.
Holding unprofitable trades is a bit more complex, because we need to examine why they are unprofitable and by how much. Have you allowed a loss to grow so large as to be uncomfortable? If so, then I'll hazard a guess that you haven't developed (and followed) a business plan like Jeff Bailey has been advocating for quite a while now. If that's the case, then PLEASE go immediately to his recent Ask the Analyst columns (the past 2 weeks) where he has done some excellent coverage of how to plan your trading and then follow that plan. If the pain level on open trades is greater than what you are comfortable with, then you are either over-leveraged on those trades or you neglected to implement a stop-loss strategy, or both. Getting your house in order with respect to proper account management would be a MUCH BETTER use of your time on Friday than baby-sitting a losing trade.
Keep in mind that it is never too late (until an option goes 'no bid') to implement damage control. If you bought an option for $2.00 and it is now only worth $0.50, either sell it to take the loss, or place a stop loss just below the current level to prevent that loss from growing. If you initially placed the trade with 100% risk capital using proper account management as Jeff advocates, then there is no need to watch it. Put in a sell order in case the play achieves your desired profit level and then review what happened next week.
If you haven't let any of your open trades get away from you, then the solution for Friday is simple -- place a stop order at the appropriate level according to your business plan. The system will automatically take you out of the trade at your pre-determined pain level and the damage is limited. Either that, or the stop will not be triggered, leaving the position open and ready to be handled on Monday. All the while, you are away from the market, focusing on other activities that will (among other things) recharge your batteries.
My intent here is not to beat up on anyone that has perhaps gotten a bit out of balance in his/her trading business. It is my sincere hope that nobody actually read this far in the article, meaning that you all have your life in the appropriate balance and are already planning on enjoying the long weekend. If any of the above scenarios apply to you, then please take corrective action to get the balance back in your trading life. If this article helps just one of you to refocus your efforts and get back on track, then I consider it a screaming success.
Here's one last parting thought for those of you that took the trouble to read the entire article. Nobody ever lay on their deathbed and wished they had spent more time at the office. Make sure to set your priorities correctly and the effort will pay dividends for the rest of your life, and probably beyond.
Have a wonderful (and hopefully long) weekend!