The optimal answer to the question "How much should I hold my positions?" is “Until the position has fully worked out”. As long as the trade remains promising, it can and should be kept open. However, a novice trader needs some guide to correctly hold and close a trade.
That is why it’s important to think over a trading plan. But before that, you need to answer a few questions:
- Is it worth considering the holding time?
- If a trade reached the planned level ahead of time should it be closed?
- If a long time has passed but the price still hasn’t reached the required level, what should I do?
The time factor works differently in trading styles. Let's take a look at each individual type.
Scalping
This trading style is pretty simple. Scalping trades are not held for more than a few minutes. Trading here is conducted on low time frames where the price is constantly fluctuating. Here, in order not to lose profits or increase losses, don’t hold the trade longer than expected. In this style, it is optimal to constantly monitor charts and open and close trades following the slightest market fluctuations.
Intraday Trading
Intraday traders open and close their positions throughout the day. Their main purpose is to avoid holding their positions overnight. It is much easier to control risks this way, as anything can happen to your position during this period. As a rule, such trades are held for 2-3 hours. With a strong trend, the position is held all day long.
Day traders typically rely on only two time factors:
- End of a trading day
- Release of important economic news. As a rule, this is a signal to close a trade. During the news, traders open separate positions.
The rest of the time, intraday traders set trading targets based on other factors:
- Closest price level.
- The height of a figure if trading is based on a pattern. For example, on Double and Triple Tops, Rounded Bottom, Wedge, etc.
- The beginning of the gap when trading on gaps, and so on.
When choosing a target, the trader also assesses the potential risks. For this, they usually use the nearest price levels as well. Each trading strategy has its own goals for entering and exiting a trade. These rules form the basis of your trading plan.
Over time, the trader begins to more and more accurately assess the current state of his trade. He quickly understands when the signal hasn’t worked out and the trade must be closed right away. He also sees when the price is clearly and confidently moving in the right direction and the position should not be closed even after reaching the set target. However, this all comes with experience. Try to focus solely on the exact rules of your trading plan first. This way you are more likely to learn how to control your risks.
If you decide to become an intraday trader, remember an important rule:
- Cut the losses quickly. Let the profits grow.
If you decide to try yourself in low-frequency trading, then in the next article, I will tell you about the time factor in swing and position trading. Don’t miss it.