I think it is unproven as yet whether holding inventory overnight actually increases risk. The assumption to this notion would be that only BAD news are released after regular trading hours. Seems to me good news are just as regularly released and that a stock could nicely gap up the following day, PLUS, commissions saved! I wonder why this "flat" strategy seems to be gospel to day traders. After all, ECNS remain open after trading office hours to 8 p.m. well after any news are released. So, if you're a day trader, you could still react after regular hours. Hedge funds also play the after hours market, and because of the decrease in liquidity, they could decide to pump a stock up (and not necessarily down)
Day trading is a relatively recent pursuit, and only tests conducted over time would prove whether being flat at the end of a trading day is really the correct strategy to control and limit risk. Perhaps, the current notion of risk control is just a sleeping pill to lull a trader to "sleep well" at night, perceiving that a day's job is done, and tomorrow is another day. Such perception could also be erroneous. It assumes that there is no continuity in a stock's movement from one day to the next. In reality, there is no end of link to a stock's story just because a trading day is over.
More likely than not the flat-strategy notion was propagated by the trading firms to fatten commissions. Likewise, there is only a semantical distinction between a day trader and a swing trader. Why would there be a difference other than the sun just set for yet another day. |
