The biggest mistake most people make when stepping into the day trading arena is thinking that it is like stock market trading. But, it isn’t. People who open a position in the day should close it by the end of the business day.
Let’s be more specific. Suppose, for example, a person bought 1000 Microsoft shares at 10:07 AM one morning, over $60, and that day Microsoft decided to sink 10 points for whatever reason. The fall that day will be done progressively.
Microsoft will increase from 60 to 50 by offering traders a chance to take the loss as long as it is still “small and acceptable” at 59.9, 59.8, 59.7, 59, 58, 57, 56 etc. People will then have the very real possibility of defining and deciding their loss (of course, it can also be done in advance, depending on the max loss amount a person wishes to accept). Each position, within a single trading session, evolves progressively.
Always close before the business day ends
On the other hand, if a person decides to keep a position just after the markets close, they expose their capital to the tremendous risk of seeing very bad news, (national or international) published between the official closure on day “X” and the reopening on day “Y”. Such bad news can change the trader’s position and create an opening that is much lower than the previous closing. In this case, the progressive concept will no longer be present.
Microsoft can very well close a Monday evening at 60 to reopen Tuesday morning at 50 and there is nothing a person can do to “limit” their loss on this position. The trader will end up with a net loss of 10 points in this position (16%) without ever having a chance to take a loss when it was weaker. This is the difference between have real control of a loss and experiencing a total loss.
It should also be noted that with day trading, people often take positions that represent all of their trading capital and it is, therefore, all the more essential to control a number of losses and their impact on a person’s total capital. To learn more, view Rockwell Trading Services on the BBB website.