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How Long Would You Reasonably Expect To Hold A News Trade?
Just a quick question here from Mike asking. For how long should we be holding onto news trades?
Let me start by saying that knowing, exactly when to take off a trade based on a news event, is largely determined by the type of news event you’re trading and the impact you’re expecting that news event will have on the market.
Knowing exactly when to let go of a trade and when to hold, is a subjective part of trading and it’s usually influenced by a couple of factors. When it comes to day trades, generally speaking, we want to be in and out of the market the same day. So, for example, if we trade something like risk sentiment, a short term risk sentiment based trade we know risk sentiment can be very fickle, so that isn’t really a trade that you’ll be wanting to hold open overnight.
Especially if the medium-term bias for the pair isn’t aligned. However, let’s say that you are trading a risk sentiment base trade, and the reason for the market trading risk on or risk off tone is very strong, or has a strong catalyst. For example, a country has declared war on another and there’s, massive repercussions.
That isn’t something that you’ll just keep for a session, that can be something if you jump in on the news and ride out for a couple of sessions or days. It really does depend on the impact that news will have. If it’s just a regular day trade, based off just a regular news event that came out with a big deviation. That isn’t really something that you would want to hold overnight, especially as we said if that overall fundamental bias for the two currencies isn’t aligned as well.
Knowing were to take it off in terms of a day trade for just a normal day trade, can be determined by very basic technical strategies. You could look for psychological levels, support in resistance areas, ADR levels or Fibonacci retracement. If you don’t reach that level and the trade isn’t going anywhere you’ll just close out at the end of the session. Now that is for regular day trades.
But, when you get a massive sentiment shift in the market, an event that nobody expected, that will be a day trade that you can look to consider holding open for a couple of days if the sentiment shift is strong enough.
Turning to something like swing trades you want your bigger picture and short-term bias aligned for these type of trades. So, for example let’s say that we have a downside bias in the medium term, for the Aussie dollar vs the US dollar and expect it to go down. But the short-term bias has caused the pair to rally quite considerably. In the short-term we’ve seen two straight weeks of up moves.
Now we know our bias is still to the downside, but we want to wait for the market to have a reason to sell the pair again in the short-term and use that as our catalyst for entering that trade. If we get a strong negative catalyst we can take that trade. Knowing where to take it off, you could either use the swing areas again on the higher time frames, or psychological levels, fair value areas or Fibonacci retracements.
A couple of technical strategies that you can use to know when to take it off, or you can just take it off when the short-term bias changes again or until the market gives you a reason to close out that trade.
Thus, it will be subjective based on the type of news that you’re trading, as well as those day trading positions. So I hope that helps Mike. If there’s any other questions, just make sure to let us know.