This goes for the all types of traders, from the smallest to the largest. Once a position is established long or short, it’s best to test and test often. Let’s go with the long position for this example. Looking at the recent move in Facebook, let’s say that Trader one is a short-term day trader who likes to be flat by the end of the day, so he/she buys 500 Facebook shares at $27.75. The stock moves to $28. I would suggest testing the market by selling just 100 shares at $28.
As President of Sterling Commodities, part of our risk management for the Clearinghouse was to go over all of the traders accounts every night. We needed to watch and analyze their trading patterns so that we could tell when it was time to talk to a trader and tell them to pull back or even take a few days off to regroup. We were able to tell when traders were about to move to the next level of trading – both in size of positions and risk tolerance – and then give them guidance. We helped them move to the next level. Continue reading →