One of the biggest challenges of forex trading for beginners is knowing when to close your position. When your open position keeps rising in value, it’s tempting to believe the earnings will never stop. And when prices take a turn for the worse, pride and ego are often begging you to hold on and wait for things to turn around.
But timing is everything. When you hold an open position for too long, it almost always ends up eating away at your profits. In general, how long you should hold an open position is dictated, at least in part, by the type of trade you’re trying to win. Different traders use different strategies to turn a profit on forex price movements, and it’s always important to stick to your guns when allowing a strategy to play out.
With that in mind, here are some guidelines on how long you should hold an open position, depending on the type of strategy you’re using.
Scalpers operate on a very fast timeline. When opening a position, scalp traders look at minute charts to take advantage of small, quick price movements.
Most scalpers are looking to open and close positions within a few minutes, and almost always within a half-hour to an hour. If nothing develops within this time frame, it becomes a risky situation, because the indicators used to identify trade potential didn’t come to pass.
Meanwhile, scalpers are typically executing dozens of trades a day, so too much time committed to a single open position could be costing them profit opportunities elsewhere.
Although forex markets are open 24 hours a day, intraday traders don’t hold open positions overnight. Their goal is to open a position and close it by the end of the trading day, which helps insulate them from news and price movements that take place while they’re sleeping. Intraday traders typically work off 30 minute to four-hour charts to identify opportunities and wring profits from open positions.
If you’re serious about intraday trading, you’re almost always going to cut your losses, for better or worse, before going to bed.
Most swing traders open a position expecting an imminent price movement, but that action might not develop right away. They’re seeking fast profits off dramatic price swings, much like a scalper, and aren’t concerned with a pairing’s long-term prospects as much as its likelihood to make a significant price movement in the short term.
In general, swing traders are executing trades on a timeline that can range from a few hours to a few weeks.
If it’s been a few days and you still haven’t seen a change, this isn’t a reason to panic. It’s fine to hold an open position until a pairing makes a decisive move in either direction. As the days stretch into weeks, though, you might need to revisit whether your indicators and strategy are still valid for your open position.
Keep in mind, too, that the longer a swing trade takes to develop, the greater the returns need to be to justify the trade as a victory. If it takes weeks to turn a 2 percent profit, that’s not necessarily a trading win.
Swing traders might choose to place a stop loss and take profit order and cut a position when then market breaks against them instead of being concerned with the length of time they hold a position.
People who trade on long-term timelines are opening positions with the expectation of long-term price trends coming to pass. They aren’t concerned with short-term price fluctuations. Instead, they’re making trades based on macro trends and information.
This could include open positions that anticipate one country rehabilitating its economy and, therefore, its currency value. Or a trader might open a position expecting that commodity prices heavily tied to a certain currency will decline in the coming months, or even years, dragging the currency’s price down with it.
In general, long-term traders don’t close positions any earlier than one month after opening them. But this can make it difficult to determine when to close a position, because long-term trading can operate on huge timelines. In general, the best bet is to close your position once you feel your technical indicators and trading strategy are no longer relevant to the position’s current price or patterns.
If you’re worried about timing your trading activity right, it’s often helpful to establish a strategy and rules for closing positions prior to executing a trade. For new traders, in particular, this protects them from making questionable judgment calls prompted by anxiety or other factors.
As you gain more experience, you’ll likely feel more comfortable making decisions on the fly and adapting your strategy based on new developments. In the meantime, give yourself a reliable decision-making structure to protect yourself from your own worst impulses.
The information provided herein is for general informational and educational purposes only. It is not intended and should not be construed to constitute advice. If such information is acted upon by you then this should be solely at your discretion and Valutrades will not be held accountable in any way.