A question arrives from a TN reader:
“I’ve got this trade that’s well into profit. My usual strategy is to trail the stop loss so I can lock in some of the profits and then give the trade chance to turn into a long-term position.
But what do you think I should do ahead of the weekend now? Should I keep the trade open or take some early profits?”
So this trader is in a situation where good profits are already there on paper – he could close the trade now and walk away with the loot – but this wasn’t his normal modus operandi. He likes to try and let his trades carry on running wherever possible.
Now, the risk with holding over the weekend is that market sentiment can actually move while the broker is closed.
You see this reflected on the chart with a ‘gap open’.
It’s when there’s a gaping hole between the close on Friday evening and the open on Sunday night.
And the new opening price can actually ‘gap-over’ any stop loss orders or take profit orders that you had resting in the market.
It doesn’t happen every week, but here’s how an opening gap can look
So with a view to building a systematic and methodical approach to trading I think it’s a good idea to design an approach that becomes the accepted ‘norm’.
For this trader I think it would be best if he decides on a course of action that he can apply every Friday.
This way he’ll always know exactly what to do in terms of pre-weekend housekeeping.
It leaves nothing down to a decision made in the heat of the moment.
It comes down to personal preference of course. There’s no single ‘right way’ to prepare for the weekend just as there’s no single ‘right way’ to find entry points for your trades.
But let’s look at the 3 main options you have when Friday night looms and you still have trades running…
Here are 3 ways to handle pre-weekend trade management
1) Tighten stops and do nothing special. This is the default setting. All we’re doing here is applying the normal trading strategy: tighten the stop loss to lock in early profit at the appropriate time and leave the trade to run as normal.
Yes, the risk is that an occasional gap open might skew the odd result. Now and then you’ll get a trade that shows a slightly bigger loss or less profits than you anticipated because of a gap open.
You might even get trades that gap past your original target price so you actually get filled with greater profits than expected!
But with a good money management and position sizing policy in place no single trade should ever have the opportunity to make too much of an unexpected dent on your account.
In fact, a small amount of ‘slippage’ on your entry and exit prices should be priced-in over the course of a series of trades as part of your ‘real world’ expectations anyway.
So that’s option 1: do nothing special ahead of the weekend and accept the odd skewed result as part of your long-term campaign.
Here’s option 2…
2) Close all open trades before the close on Friday. This is the kind of approach I’d recommend anyway for shorter term traders. It provides security against gap opens and it gives you peace of mind that nothing terrible can happen to your positions while the market is closed, so you can at least enjoy a relaxing and stress-free weekend!
But remember, we’re looking for ways to stay in trades for the long term here. So how can we achieve that when we close out the trades each Friday?
One tactic you might use is to close all your open positions at a set time each Friday – I like to use 7pm – and then reopen the position at a set time on Sunday night or Monday morning.
Yes, there’s going to be a difference in price when comparing your exit on Friday and re-entry on Sunday, sometimes it’ll cost you and sometimes you’ll gain, but you might consider that a small payoff against security and peace of mind over the weekend.
There’s one downside to this approach though, and it’s a bit psychological in nature… it can be tough to re-enter a trade that has already made a profitable 50 or 60 pip move without you being on board!
Luckily, there’s a third way we can prepare for the weekend. A kind of ‘halfway house’ that gives some security and still keeps you involved and committed to your trade.
3) Hedge your bets. Take half the position off on Friday night and re-enter the other half on Sunday: it reduces your exposure to an adverse move over the weekend but maintains your presence in the market. And it can be mentally much easier to amend and adjust an open position than to completely re-enter from scratch.
And the beauty of this approach is that you can scale the slice of the position held over the weekend to suit your own tolerance to risk… you might only hold onto 30% of the overall trade, or even 10%.
But I’d certainly think about keeping a part of the original trade live however small. It can really help maintain that connection to your original plan and overcome any subconscious reluctance to jump back in on Sunday night.
So if you sometimes find yourself in this kind of situation on Fridays, why not come up with your own standard plan of action now?
It can help prevent poor decisions made in the heat of the moment.