Trader Theme Of The Week: Risk Adjustment

Here we are, one week into November and I’m happy to say that I’m in the green about $3,400 over the first five days of the month. And, while green is always good, I’m a little disappointed that I’m not having the same opportunities I saw over the stellar October.

My instinct is to chalk it up to a normal shift in market behavior. The volatility that cropped up last month is slowly drawing down, traders are still chewing on the earnings reports that peppered the past few weeks, and markets are slowly processing the possible impact of the midterm election results.

A lot’s changed in the past few weeks, but for day traders, it just means rolling with the punches and adjusting our risk.

You might have guessed by now that risk adjustment was a theme for me this week. My hit rate on trades is down just below 50 percent over the first five days of the month when it’s usually in the 70s.

Beyond that, my wins have been more modest and I’ve gotten dinged several times at my $1000 max risk. These were trades that just broke down, sometimes by 15 percent in a single candle like my Tuesday trade in Boxlight Corp. BOXL. On Friday, what could have been a $10-15,000 trade in Inpixon INPX turned into a $1,000 loss when I couldn’t get my orders filled at the level I wanted and the chart just collapsed.

The reason I’m bringing up these losses is because I think it’s important for me, and any trader, to recognize when these patterns emerge. This kind of shift isn’t troubling or even out of the ordinary, it just shows me that I need to be more cautious when approaching a trade and adjust my stops higher if I plan on taking a 5,000 or 10,000 share position. I might also shift my focus of trend indicators from momentum signals like MACD to metrics that emphasize volume.

It might be different for some traders right now, they might be taking in huge wins in tickers that just aren’t on my radar. For me — and for others who are looking at the same criteria that I look for in a stock — it’s just time to pull some swings and aim for base hits over home runs.

Hopefully the buying activity at the open livens up a bit as the month goes on. But until it does, I’m happy to temper my expectations and work for more small wins if it means avoiding big losses.