Why Friday is a bad time for stock market decisions
Friday afternoons often tempt us to make last trading decisions before the weekend. However, this is the moment when we make mistakes, such as unexpected price slippages. For example: You want to buy shares at 100 PLN, but due to a drop in liquidity, the price rises to 102 PLN. As a result, instead of investing 10,000 PLN, you spend 10,200 PLN. Another mistake is the increased spread - the difference between the buying and selling price. It can be as much as 2-3% of the standard value, which with a capital of 15,000 PLN means a loss of around 300-450 PLN. Finally, stop-losses - you intend to set them at -2%, but low liquidity causes the order not to be filled on time, which leads to a potential loss of even 5%.
Friday afternoon is the moment when markets lose liquidity. Investors close their positions before the weekend, which results in a lower number of transactions. This, in turn, affects larger price slippage and increasing spreads. Additionally, the weekend gap is a phenomenon that causes Monday's opening prices to differ significantly from Friday's closing. These unpredictable changes not only complicate risk management but also increase costs.
Assume you have a capital of 15,000 PLN. On a Friday afternoon, you make several purchasing decisions. Due to increased spread and slippage, you lose about 3% of the transaction value. This means a loss of about 450 PLN. If we add to this the potential losses associated with the weekend gap, which can amount to an additional 2%, the total loss is 750 PLN. On an annual scale, with regular trading on such days, this can result in several thousand PLN in unnecessary costs.
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