Derisk Losing Positions When You Are Up Huge

Posted By on May 5, 2015 | 0 comments


Every trader has a huge day once in a while. When I say 'huge' I am referring to a trade or a bunch of day trades where I end up making 10 times+ what I normally reap on a normal trading day. Last Friday May 1st I had one of these huge days.

I was long 16,000 shares of $ENOC coming into that Friday (it closed Thursday at $11.05). I've actually been swinging this core position for two months after it tanked down to the $11's and have been adding and selling a little here and there bringing my average price for the entire position to $10.93. That Friday $ENOC announced a deal with $TSLA and the stock shot up +33%. I sold 10,000 shares from $13.90 to $14.56 and decided to swing 6,000 shares still as I continue to believe $ENOC is fundamentally undervalued even before this Tesla partnership news. With other positions, I was up a cool $58,000 for the day by 9:45am EST.

Not all my swing positions are winners at first. I was also swinging for the past few days longs 7,500 $AKRX and 8,000 $AERI. My average prices on those 2 positions were in the red for a minimum of 1 dollar. But since I was up huge Friday, I decided to re-risk my losing positions. I sold all my $AERI long for a net $7,993 loss and sold 2500 $AKRX for over a dollar loss from my average price.

Being up big allows me to get out of losing positions where I am not really comfortable holding without feeling getting smoked. $AERI was trading very poorly that Friday. The $XBI and $IBB biotech ETFs were trading up strongly on $GILD news but $AERI was not participating in the biotech rebound. This gave me even more reason to take the loss. As for my $AKRX 7,500 long position, I was more comfortable holding this one so I decided to just trim the position to be only 5,000 shares.

Taking losses when you are enjoying being Fort Knox for the day is much easier to do than when you are deep in the red. It makes an opportune time for you to start fresh and to enjoy your winnings. Sell your losers, or at least trim some to a more comfortable size, and move on. This is what I do to stay sane as holding losing positions and watching them trade tick by tick moving against you is extremely stressful. It also allowed me to get back into $AERI that same Friday $.65 cheaper too :).

Keep in mind that what matters is your OVERALL P&L. If you have any realized big winners one day, don't be afraid to take some losses on the positions (whether they be swing or intraday) that keep you awake at night. This derisking strategy definitely helps me feel recharged after a huge trading day and lets me start fresh the next morning without having to worry about any uncomfortable losing positions.

- Hubert Tsai

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