Closing trades for the weekend

Should you close trades before the weekend?

It’s Friday. TGIF! You already have a drink in your hand and ready for some weekend activities, but you still have one trade open. Should you close trades before the market shuts down for the weekend or not? Multiple traders will give you many different answers. It’s an interesting topic and when you want to know what to do, there are a few considerations to make. I decided to look into it.

 

Close trades or not?

 

Close trades over the weekend

 

Let’s look at two different scenarios. Scenario one shows a trade setup where the trade was kept open over the weekend. Scenario two shows a trade setup where the trade was closed before the weekend.

 

These examples will not show that one is better than the other, but rather that whether or not to close trades over the weekend can make a big difference. At the same time, there’s not a single best solution. The following scenarios show why.

 

 

Scenario one

 

Consider this: you’re long EUR/USD after a range breakout and you’re 2 hours away from the weekend close. You decide to keep the trade open.

 

EURUSD trade on Friday

 

On Sunday, there’s an unexpected announcement which is very positive for the US. The pair gaps considerably lower on Monday and you’re left closing the trade for a loss or (worse) hoping it will go up again.

 

EURUSD trade after weekend

 

 

Scenario two

 

On the other hand, consider this: EUR/USD is in an uptrend and you’re riding the trend. Since you have a rule in your trading plan to never keep trades open over the weekend, you decide to close the trade.

 

EURUSD before weekend

 

On Monday, price continues to move lower, but you can’t find a good opportunity to re-enter anymore. You lose out on missed profits, which you would’ve gotten if you just stayed in the trade.

 

EURUSD after weekend

 

 

 

Considerations to make

 

Multiple approaches, multiple results. There’s no one size fits all but we can, however, look at various factors that play a role why or why not you should close trades over the weekend. Let’s have a look.

 

1. Entry Timeframe

 

This might go without saying, but this is a non-issue if you’re a scalper or a day trader. Your trading style guarantees that you’ll be in and out the market, with trade duration ranging from a couple of seconds to a couple of hours at most. Conversely, this is also not an issue if you’re a position trader who keeps trades open for weeks or months. The temporary fluctuations over a weekend will very likely not affect your position too much, so you keep your trades open.

 

Trade entry timeframe

 

It gets more interesting if you’re a swing trader. If you trade off the 1H or the 4H, you might keep trades open for a couple of hours until a few days. If you open your trade on Thursday or Friday, there’s a fair chance that it won’t be played out before the Friday close. You’re now presented with two scenario’s: close the trade or keep it open. To know exactly what to do, you should look at the next couple of factors.

 

 

2. Risk of being stopped out

 

mind the gapIf you have a trade open and you’re not sure whether to close it or not before the weekend starts, consider this: how much risk is there that your stops might be hit if a potentially large weekend gap occurs? If you’re already down 0.5R on the trade, it might not take much of a weekend gap to hit your stop loss.

 

This is of course very much dependent on the size of your stops, so this is a consideration each trader has to make for him or herself.

 

On the other hand, if you’re already up 1R, you might feel that you have enough “buffer” to take any potential weekend gaps that might arise. If there’s no other reason to close trades except that the weekend is starting, it might be perfectly valid to keep the trade open and take that risk.

 

It’s up to you to decide how big your buffer should be. One approach could be to say that if you’re up 0.5R, you leave it open. Or 0.6R or 1.5R. The actual number is something every trader needs to decide on their own. Another approach could be to look at the ATR and if the distance to your stop loss is more than say 2x ATR, leave it open. Again, the specific value is something you need to decide.

 

 

3. Fundamental climate

 

Certain times can have a relatively bigger probability of something unexpected occurring than other times. If you know Brexit negotiations are currently happening, it might be wise to close out any GBP trades you have open before the weekend. When president Trump will release some new information on regulatory reform soon, it could be a good practice to close your USD-related pairs. If OPEC is planning to release some new data on oil production and supply, take care to check up on your CAD trades, for example. You get the idea.

 

Fundamental climate forex

 

What makes up an unstable fundamental climate is very subjective, of course. I believe it is part of the trader’s toolset to know about what drives these fundamental factors and keep them into account when making a decision to close trades for the weekend or not. This doesn’t mean that you have to be a fundamental trader, but rather that you know enough to make informed decisions when the situation occurs.

 

 

4. Trading journal statistics

 

Your trading plan and trading journal should provide the necessary insights as to whether closing trades for the weekend works for you or not. A trading journal should provide you with the possibility to add custom statistics on your trades (whether you just keep this in an Excel document or have trading journal software). You should use those statistics to keep track of potential outcomes of a trade if you closed it for the weekend and if you would’ve kept it open. A good trading journal that I use and which supports custom statistics is Edgewonk.

 

trading journal

 

Over a significant sample set of trades, this will give you invaluable information on what to do. You should base your decision on objective statistics, rather than some gut feeling (however good your gut feeling might be). For every trade, you should track at least these two things:

  • your R outcome if you had closed the trade
  • your R outcome if you had kept the trade open

 

If your trading journal tells you that 70% of the trades you leave open over the weekend actually work out fine, you have a good indication of what to do in the future.

 

 

5. Friday and Monday trading

 

I have a rule in my trading plan that I don’t open trades on a Friday afternoon. This is because trading on Fridays often slows down a bit. A lot of traders will stop early on Friday, which reduces liquidity and leaves room for potentially unpredictable moves. Additionally, not opening trades on Friday afternoon will automatically result in fewer trades I might need to close because of the weekend.

 

For similar reasons, I have a rule that I don’t open new trades before the London open on Monday. The Asian session on Monday (or Sunday night for me) is prone to the same low liquidity conditions as on Friday afternoon, so I just keep clear from opening trades before the majority of traders start their week.

 

 

6. Peace of mind

 

weekend

 

Finally, closing your trades gives you some peace of mind. Forex is a 24/5 market and is already very intensive compared to for example the stock market. If you have trades open, you’ll be thinking about it for the entire weekend. On the other hand, if you closed your trades, you can enjoy some free time, review your past trading week and plan for the upcoming week without worrying if you will still have a good trade when the market opens again on Monday.

 

 

Conclusion

 

Whether or not to close trades before the weekend is something that should be in your trading plan. If you don’t have this yet and you wonder what you should do, you can use the following checklist:

  1. Am I a scalper or day trader? Close the trade. Am I a position trader? Leave it open. Easy, you’re done.
  2. Am I in profit yet? If so, how much do I want to be in profit to be comfortable with leaving the trade open? You should back this up with your trading journal statistics! Optionally use indicators like ATR to help you decide how big your buffer should be.
  3. Is this a trade with a currency that has an increased fundamental risk? If so, potentially close the trade.
  4. What does my trading journal tell me? If the past twenty trades show that I should close my trade for the weekend, then close it. Otherwise, leave it open.
  5. Consider not opening new trades on Friday afternoon to reduce the number of times you need to make this decision.
  6. Are you often worrying about your trades during the weekend? You might feel more at ease if you close them.

 

How do you deal with open trades before the weekend? Let me know in the comments!

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Felix

I'm a full-time, independent forex trader. I've been trading for over 10 years and specialise in reversal trading, trading psychology, algorithmic trading and coaching others. When I'm not trading, I'll either be travelling the world or rock climbing (likely both). Read my story here.

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