Night MovesIs it wise for retail traders to hold trade positions open overnight or over the weekend if the profit target has not been met by the end of the trading day? Even if you have a stop loss in place, unless you are a position/swing trader, intra-day traders and scalpers should not get into the habit of holding any positions open overnight during the trading week or over the weekend (regular or long).
If your position has not hit your take profit target by the end of the trading day and you want to keep the position open until it does, you need to have decisive analysis indicating why that take profit target is likely to be hit when the market reopens after closing. Whenever the market closes and resumes on the next day and especially when it closes on a Friday and reopens after the weekend, market flow is disrupted and unless you have a wide stop loss in place, you may well end up with a loss because your previous analysis for that set up/trade idea may no longer be valid for the new market flow.
An open position held overnight can easily get stopped out if on the next trading day there is a geopolitical event that causes a gap on open, printing a big move. Geopolitical events unfortunately are not scheduled on any economic or news calendar in advance and indeed sometimes, bad news is deliberately released by governments over the weekend and can blindside novice traders with open positions. Another way that you might have your SL tripped is if an institutional algo activates a huge sell order, for example, without clear rhyme or reason on market open or soon after, creating a cascade of sells and printing a flash crash before the necessary correction.
Some retail traders will even hold positions open overnight without a stop loss with the intention of “tracking” the move using dynamic support and resistance and will consequently wait to see how those MAs move on the following trading day. This can play havoc with your psychology as you will be processing bias in favour of your open position whilst trying to analyse the market as objectively as possible. Also bear in mind that you may see eye watering swap charges incurred for holding trades overnight especially with larger lot sizes and this needs to be factored into your risk to reward for the trade.
At the time of writing this post, it is triple witching Friday. Any temptation to open and hold a trade just before market close today will run into another problem related to volume. This coming Monday is a U.S. federal holiday when the NYSE, Nasdaq and bond markets will be closed. Due to the thinner volume on Monday as a result, any open positions from today that get sucked into drawdown on this holiday will be that much more difficult to roll out of successfully during the day. The only exception to that might occur if the lack of volume creates an exaggerated move with a price spike due to heightened volatility. However, you’d need have your eyes on the chart at the time, have a quick trigger finger to exit and close out the trade and of course, the move has to be in your favour in terms of the direction for the exit in the first place.
Always close out a position before the end of the trading day and come back to the market in the new trading day with peace of mind and a relaxed attitude. An open position in drawdown on a new trading day will only create stress and interfere with your focus not just on dealing with that open position but also with regard to entering any other set up opportunities. Remember, whenever you go to market, please be careful out there.
