In my last article on forex news trading, I mentioned the importance of keeping an eye on economic news and events.
This time, I want to focus more on trading hours and days – when it’s good to trade and when you should better stay away from the market.
As a daytrader, I hold positions for only a few minutes or hours, and only on accasion for more than a day. But what I try to avoid most, is having a position open on the weekend.
Holding positions over the weekend
The reason is quite simple: as a daytrader, I set tighter stop losses which results in bigger positions. If I had, for example, an account balance of $10,000 and would risk 2% per trade, that’s $200. With a stop loss of 500 pips, that would result in a position size of 0,4 lot, while it would be a 10 lot position if I had set a stop loss of only 20 pips. Clear? Clear.
The problem with weekends is, that there can be a gap when the market starts again the next week. Such a gap can sometimes have a hundred pips and you get stopped out at the next best price – and not your stop loss you set the week before. And now imagine what a 10 lot position with a 100 pip loss would do to your initial balance of $10,000 – it would be reduced by 10%, and not the 2% you wanted to risk, leaving you with $9,000.
How to avoid
Don’t open positions on friday a few hours before the market closes. Many traders close out their positions on fridays for that particular reason. This is also something you should be aware of:
Now, if for example the underlying trend of EURUSD is a downtrend, then every trader that has been short this week or day will close his or her position to not be unpleasantly supprised after a gap the first trading day of the next week.
Closing a short position is simply done by going long – you sold EUR before and now you buy it back. The effect is, that prices rise. You can see this quite often on EURUSD that a few hours before market stop on friday, EURUSD rallies and rises.
So even if you are on the right side of the market by going short, you can get into a bad situation if you open positions too late on friday and market didn’t move in your favor. You have two choices: closing with loss or holding the position throughout the weekend. And then you pray that the market will move in your favor on sunday when market opens again.
So: don’t open positions late on friday.
Same applies to trading on mondays. We have some gap filling, which means that after a bigger gap, the price often closes this gap but not always. Many traders open new positions and adjust their positions for the next week…
It’s better to let the market reorganize itself before you start trading.
Best trading days are tuesday, wednesday and thursday. Avoid open positions on friday and wait for the market to organize on monday.