Day Trading Rule – Tricky Friday Action

One of most painful scenarios you can experience as a trader is to spend the whole week grafting, only to take a big trading hit on Friday. Unfortunately, it’s happened to us all at one time or another and going home for the weekend having lost a load of capital is not a nice feeling at all. This is why “Don’t lose your shirt on a Friday” is such an important Day Trading Rule.

A tricky trade session

There are at least a few of reasons why Fridays can be trickier trading sessions than other days. Options expiration can of course be a choppy trading day to navigate. Markets associated with big option expiries can see difficult movement that can cause a trader to have to take more stop-outs than usual.

Then there’s the weekend risk. Anybody holding positions into close has the added risk that they cannot trade again until Monday (or possibly Sunday evening) and if there are geopolitical risks such as the kind we’re seeing at the moment in the Middle East and Ukraine, traders will be more keen to mitigate some of that risk by squaring up or hedging their positions.

Perhaps the most obvious reason, especially during the summer months, is that traders want to finish early on Friday. They want to take advantage of the fantastic weather and they certainly don’t want to be the ones who lose their shirts on a Friday. So if you find yourself fighting a losing battle, you may well also find that there’s far less movement left to make some money back.

The Bund

One Friday was potentially just such a day. More talk of sanctions on Russia over Ukraine, concerns about the Middle-East and a poor read on the German Ifo numbers set the scene for a pretty unforgiving rally.

Bund 3 Minute Chart

The image above is a 3min chart showing Friday’s action in the Bund. It demonstrates that although buyers weren’t initially forthcoming, after a certain time, there was no looking back. Failure to recognize some of the root causes and take into account that it was Friday could have easily seen a trader fade the move over and over again, in the hopes that there would be a decent reversal. The action here was however, extremely unrelenting and after 11am EST, the largest pullback was just 8 ticks in magnitude.

Don’t Lose Your Shirt on a Friday

There are some day trading rules that are set in stone. Then there are rules like this one that are highly dependent on the current situation and require a trader to be a bit streetwise. Indeed, there are plenty of times where I’ve had really productive Fridays. But recognizing that in this case, there were elevated levels of headline risk and that it was a summer Friday, was absolutely key to avoiding the situation that I am certain at least a good few traders will have found themselves in – going into the weekend with a big loss.

Make sure that when you prepare each day, you take into account situational context. Do this every day and remember that on a Friday, this might be particularly important – don’t lose your shirt on a Friday.

Trade well.

For more updates from Mark and the team at NetPicks, be sure to visit their trading tips blog at NetPicks.com.