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  • Writer's pictureMatt DeLong

How do day traders trade in recessions?

During price declines in a recession, we GO SHORT. Typically one of 3 ways — we typically either buy put options, sell call options (collect option premium) or short a stock. Each one has it’s own inherent risk/reward but all 3 techniques assume the price will go down which means our gains will increase. In the event prices go up and move against our position (such as M&A news in stocks), our pre-defined risk management rules trigger and the position is closed for a small loss.

Typically mutual fund managers are “long only” during these times as they give up years worth of gains in a few months, they begin exiting full/partial positions of 10m+ shares, causing the prices to decline further as there are more sellers than buyers.

Our SHORT position gains typically happen much faster than our LONG position gains. Hope that helps!

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