do you use your instincts when you're day trading

Do You Trust Your Instinct When You Day Trade?

Trading Blog


October 16, 2020

It’s great to look back at the last year’s trades and realize how far I’ve come.

On November 22, 2019, I saw that CGIX shares were available for borrowing at 8 cents per share. I’ve learned my lesson by missing a similar opportunity with SAEX, so I went ahead and borrowed the shares pre-market. CGIX was a low float stock with a 1.6mil float. It had some news which didn’t bother me that much. It also had a number of warrants, which was good since I was going to short that stock.

Generally speaking, I don’t usually trade super low float stocks, especially early in the morning. The odds tend to be not on my side. Additionally, they tend to be extremely volatile, and that’s just beyond my comfort level. For example, if you come in at $2 per share, the price may go up to $7 and back down within minutes.

But I found that trading low floats worked for me in the afternoon. I’ll tell you how I made an overall gain of just over 3R even though I initially traded it wrong. But to get this gain, I had to wait until the very end of the day, not knowing if I’d be able to trade it at all.

The First Trade Of The Day

At the open, the stock tanked from $6.50 to below $4.75, and I thought that I’d missed it. However, I knew that it was about to rotate its float since it was already at the half. Low floats tend to squeeze; this is why afternoon is the ideal time for this setup. And once they get squeezed, they build for the rest of the day and consolidate only to break down towards the closing.

Before closing, it had a huge perk in volume. The chart also spiked up and touched $7, which was the top of the range. I got in at $6 with two-thirds of my position. I was also looking for an opportunity to add the last third. 

In hindsight, I shouldn’t have added on a huge spike as it was already going down. It went from $7 to $5.50 in a matter of seconds. It’s never great to chase the high when it gets rejected like that. It seems so clear when you’re looking at the trade with fresh eyes. But when you’re trading, you get carried away and make less than optimal decisions. It takes years of experience to preserve your composure and clear head when trading; emotions run high, and it’s hard to see things rationally.

This is why adding the last third was wrong. Doing it at the low point of the spike, almost at $5.50, brought my medium to $5.80. And then CGIX spiked up again, going a bit past $6, and VWAP went up to $5.90. The stock hit $6.15 and got rejected. I lost 1R.

Revenge Trading Or Making Things Right?

Now, this is where instinct comes into place. Normally, my golden rule is not to jump back in after the trade hit my risk level. A red trade usually means that I’ve been wrong about it.  But in this case, $5.90 was an arbitrary number, and I knew that I could still take advantage of the situation.

There’s a huge difference between revenge trading when you have no basis whatsoever and doing what you think is right. Again, this is where you should rely on your instinct and your experience. The second trade wasn’t about feeling salty or wronged; it was about following up on the strategy that was right all along. The chart was still showing me the weakness, and everything was setting up correctly. All my conditions were met.


So I put a full position in again. My average was $5.91 at the time, which was great. I didn’t let the first trade affect my judgment, although it made several attempts. Once I lose, no matter how much or how little, my confidence starts to deteriorate. However, I didn’t let it get to me this time.

In all honesty, I was tempted to not wait for my key level and simply recover my losses instead. So when the stock hit $5, and I had an average of 5.90, I covered a third. And when it bounced back up to $5.50, I almost covered the rest just to be done with the trade. But I didn’t do it since my reason for it wasn’t very rational.

At the moment, I was happy that I managed to cover the loss of my whole position with a mere one third. This is the beauty of the 3:1 Reward-Risk strategy. When you measure your risk and reward in Rs instead of dollars and cents, you can quickly quantify your losses and gains and understand intuitively if you’re up or down. This way, you don’t need to have your eyes peeled on your profit chart; you just know how your day is going. So if you take 1R loss, you can break even with only a third of your position. And if you trade full position at all times (which is generally not recommended), one gain can cover three losses. This is how you can have a strategy that works only half the time and still make money day trading.

Once I admitted that my reasoning behind the urge to cover at $5.50 was the fear of losing again, I decided to wait. I was two-thirds size in, and I knew that CGIX was still going to break the low of the day. And it did that not once, but twice.

First, it went down to $5.12 but then immediately spiked up. I thought about covering right then, but the stock was still downtrending. It also hadn’t set higher highs. This may have been a higher low, but there wasn’t a confirmation yet.

In retrospect, I’m really glad that I didn’t cover at that moment. Stocks can move very quickly (again, we’re talking about a super low float here).

So I waited for about 20 minutes until the stock went back down to $5. I covered another third at $5.10 and the remaining third at $4.80, which I was really stoked about.

There are several takeaways that I got from that experience.

  1. It’s great to have a gameplan. Even though I made a mistake of chasing a high with the last ⅓ position at first, I managed to fix it and come out green at the end of the day. My plan was correct at the core, even though its first execution was botched.
  2. Don’t chase spikes when they’re falling. Once a new high gets rejected, the price goes down with the speed of light. In my case, it lowered my position’s average price. This is why my risk level was met prematurely, and this is why the first trade became red.
  3. One loss doesn’t mean that the game is over. It also doesn’t have to ruin your day or make you throw in the towel. You can turn things around. I still like the rule that prevents me from revenge trading, but that particular retrade made perfect sense. It was well justified and wasn’t emotional at all.
  4. Don’t let your fear take charge of your actions. For a moment, I almost gave in and covered at $5.50, which would have still made that day green overall, but it wouldn’t have given me the 3R gain. You have your plan for a reason. It works, you just need to believe in it and act on it.

These are all great lessons that I’ve learned that day. I applied them to the next day and to many more trades. But with day trading, you have to prove yourself again and again. You can’t just say that you’ll never make the same mistakes again; you have to put your insights into action and be aware when trading at all times.

That day, among other ones, has made me the kind of trader I am today. Of course, I would’ve preferred to have never taken that first loss to begin with. But it’s great to have a green day nonetheless.

Now I believe in process over profits, but it still feels great to know that you’re right. You’ve done your research well and developed a strategy that worked for you. It didn’t happen by accident; you’ve worked hard to understand how the market works. It’s not just the monetary gain that keeps you trading; it’s also the process of figuring it out.

Do you rely on your instincts when you’re day trading? Do you break your rules often? Share it below in the comments!


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