Question:
Why is it that the markets regularly move dramatically at the open? On more than one occasion, I have been in profit the night before only to find myself in a loss situation the next morning before I can do anything about it. Very frustrating …
Frustrated in Gaptown
Answer:
Your very question implies you might want to do a bit more research about trading before making any big “bets.”
The answer to your question involves two basic elements of trading. The first is that markets can gap up or down at the opening of a trading session. This results from either big movement in the after-hours market, or large trades placed to open the trading session. The second is how you define yourself as a trader. Are you a day trader, a position trader, a swing trader, or a guerrilla trader? Your definition will determine whether you keep a trade open or close it at the end of the day. If you define yourself as a day trader, then holding a position overnight is a rare thing indeed. If you trade in any other style you might be in and out of a position intraday, or you might hold it for several weeks or more depending on your objective, which brings me to one more point you should consider. No matter the style of trader you deem yourself to be, you should always have an exit point identified. Your trading strategy should define this and you should stick to it.
If you are waking up in the morning shocked to find your profit evaporated, you clearly have not defined yourself as a trader. As well, if you have a defined strategy and your emotions in check, when you wake up in the morning, you would not feel shock or frustration. You would either see you have stopped out, which you accepted as a possibility, or you would see your position moving in the correct direction. At that point, you could make other choices, such as taking profit then and there, or adjusting your stop to ensure profit and let your position run.
My guess is that any trader with any long-term success will tell you that he or she got to that position by knowing his or her style and, as well, learning how to lose the emotions of shock and frustration.
Trade in the day; invest in your life …
