Should Sentiment Trades Be Held Over Night?

It depends on the type of sentiment that you are trading. Big shifts can be held for longer while short-term shifts are best traded intraday.
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Sentiment Trades – Held Overnight

We just have a quick question asking us whether we can leave this pound US dollar trade idea, open overnight? It brings us back to the question of when can we hold sentiment based trades overnight?

The general rule with regards to sentiment based trades, especially a short term sentiment based trades like risk sentiment rates, is that it is going to be a sentiment that you don’t really want to be holding open overnight. And the reason for that is sentiment, especially risk sentiment can change very quickly.

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It can be very fickle, uh, which means that you might be seeing a risk on term during the European trading session. In the middle of the session, something happens, the risk then suddenly changes and then obviously that’ll change the, the overall trade idea. So it really comes down to what type of sentiment you trading.

If it is a general, day-to-day sentiment based trade, it is something that you want to close at the end of the trading session or at the end of the trading day. It’s not really something that you hold open overnight, especially if it’s risk sentiment based trades because there can be a lot of thin liquidity during the Asia Pack session and any drastic moves there can quickly hit your Stop-Loss, take you out of your trade, and then just resume on its way the next day.

So it is very, very prudent to close out any sentiment base trades at the end of the session. At the end of the day, it’s always just safer to do it that way. Now of course there might be some sentiment shifts where you can consider leaving it open overnight.

Let’s say it is a very significant sentiment shift. It’s, uh, it’s a surprise rate cut obviously in this environment we’ll be trading at the moment it’s a little bit different with all central banks cutting across the board, but let’s say it’s just normal market, market environments and suddenly you get a surprise rate cut by a by a central bank.

That is normally the type of sentiment shifts and the markets weren’t expecting it, obviously. That is the type of sentiment shifts that you can leave open overnight and maybe trade a couple of sessions a couple of days, but as far as it goes to normal risk sentiment based trade or just normal daily sentiment based trade. It’s always based to close those positions at the end of the session or the end of the day as we are trying to capitalize on that fresh sentiment that is driving that particular currency or currency pair in that particular day.

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