Don't Underestimate The Importance Of The First 5 Minutes Of The Trading Day

It’s strange to think that we’re more than a third of the way through 2018. And though I’m up more than $200k in my main account through the first four months of the year, a losing streak that has stuck with me into May has me feeling rather mixed about my trading right now.

Still, 2018 has been mostly good, and the times that haven’t been good have at least been interesting. For the curious, I just posted a retrospective for April that gives a high-level summary of my ups and downs.

That recap also gave me some perspective on the current red streak I’m on, and it helped me to think about the trend of false breakouts that have hit the market after the massive gains early in the year. One of the clearest indications on where those breakouts ended up breaking bad for me is right after the open.

The flurry of activity in this period — especially in the first five minutes of trading— sets the tone for the day. I’ve stressed before the importance of preparation for the open, which can mean keeping tabs on simple moving averages, scanning your research tools for possible headline catalysts, or digging into the tape and gauging volume trends. The critical thing is setting price points in that research that give you the best chance of capitalizing on those recent trends.

However, the recent market hasn’t been graciously extending those breakout trends beyond spikes on the open. This has made even successful trades an act of reflexes over planning.

As an example of this, last Friday I took an opening position in Genprex Inc GNPX that I meant to get in as it hit $14 a few minutes after the open. Unfortunately, it opened a few cents above that, consolidated, then spiked again past to a high of $15.70. My exit was initially $15, so I had to perform some field surgery on the trade. I got in my initial trade for a 7500 lot around $14.50 and added more at $15. Unfortunately, I ended up getting stopped out on the way down for about a $200 loss.

That all happened in the first 10-15 minutes, but the first five, when that stock opened, should have sent a signal that this wasn’t the trade I had thought it was. In retrospect, that was an entirely workable trade, but I failed to adjust my expectations in the moment and ended up starting the day in the red. It’s a difficult task to change your mindset in the moment, and we all get caught off guard from time to time. But learning to adjust when things go awry, or just walking away entirely, is the mark of disciplined trader.