Why Overexposure to the Market Can Hurt
Exposure to the market usually refers to how much you can afford to lose. Overexposure occurs when you’re not prepared for the losses, and in some cases, even the gains. Overexposure can indicate that you’ve purchased too many shares at one time, and you’re not yet used to the swings and the rhythm of the stock. Overexposure can also mean that you’ve purchased a stock at the wrong time, as in premarket or after-market, and uncertainty is dangerously high.
In the rare circumstance of the trader who enjoys unlimited wealth, it doesn’t matter much to him if his stock price plummets. Because he has no pressing financial concerns, he’s never overexposed.
If you’re reading this, however, I can bet my life you’re not him; neither you nor I will ever indulge in his carefree, cash-burning capers. We and the other struggling hopefuls on this planet are consumed by the quest for more money, and the fostering of a personal tolerance level to the losses that hit us like bricks. Some of us would rather deal with our losses at the end of the trading day, and some of us prefer to recognize them after every trade. Either way, overexposure is an intraday threat that we have to learn to manage.
Suppose you’ve been trading a particular stock all day, and you’ve gotten into its rhythm. You’ve been trading 100-share blocks the whole time, in and out. Overexposure happens as soon as you choose to purchase more than 100 shares at a time, or if you ...