How Long Should You Hold a Forex Trade? - Trading Heroes (2024)

When you are first getting started in Forex trading, it can be challenging to know how long to hold a position open and when you should close it out. So if you are wondering how long you should hold your trades, this tutorial will give you the tools to figure it out.

The length of time that you hold a Forex trade open will primarily be determined by your trading strategy, current psychology and status of the trade. While it is possible to keep a trade open anywhere from a few seconds, to a few years, most traders keep their positions open for a time period that is somewhere in between.

Now let's take a closer look at the different factors to consider when keeping a trade open and examine a few specific scenarios. I'll also answer some frequently asked questions about how long to hold onto a trade.

How Long Can You Hold a Forex Trade?

Let's start by taking a look at how long it's possible to keep a trade open.

You can hold a trade for as long as you want, as long as your broker is still in business and you are able to fulfill the margin requirements in your account. This holding time can range anywhere from a few seconds to a few years.

Holding a trade for a few seconds generally doesn't have a huge impact on your account, unless you are trading too big of a position size. However, you should consider two things before you hold a position for a long period of time.

First, what is your total risk on this trade? If you have a trade open for a long time, that implies that you have a wide stop loss or no stop loss at all.

Obviously, not having a stop loss is a recipe for disaster. Unless you are hedging, which is a form of a stop loss.

But if you have a big stop loss, consider how much of your account is at risk if that stop gets hit.

Will that be too big of a loss to easily make back later? If so, then consider reducing that stop loss to a reasonable amount. For beginners, this is in the range of 1-2% of your total account.

Second, consider the rollover (or interest) that you will lose on the position.

When you keep a Forex trade open, you will either receive or pay interest. This depends on the current interest rates of the individual currencies in the pair, the amount of leverage you are using and the rollover rates set by your broker.

Your broker probably has a rollover calculator that you can use to estimate how much interest you will pay or receive.

Here are a couple of examples:

• Oanda
• Forex

If you cannot find a calculator on your broker's website, contact them directly and ask them what their current rates are.

Should You Hold a Trade Over the Weekend?

There are several different factors to consider before you hold a trade over the weekend. The biggest risk is that price will gap against you when the markets open at the start of the next week.

So if you're a scalper, then you shouldn't hold a trade over the weekend.

Your risk is just too great.

However, if you aren't a scalper, then consider these factors.

Reference Your Trading Plan, Data and Trading Journal

The most important thing to consider is your trading plan and what your data says.

Presumably, you have backtested and forward tested your plan and it has an edge.

If you haven't done that yet, then get started with that right now.

Another source of data that you should also look at is your trading journal.

This doesn't have to be complicated. You don't need a special journal for this.

It can be as simple as using a pen and paper to track your trades. Count how many trades you held over the weekend and the results.

That can help you make a decision.

What is Price Action Telling You?

Once you've looked at your testing and journaled trades, then it's time to look at your chart and let price action help you make a decision.

Does it look like the move will continue?

Does it looks like it will stall?

…or is it unclear?

Let's take a look at a couple of examples.

If you were in a short trade in the NZDCAD and this is what your chart looked like before the weekend, what would you do?

I think most traders would stay in the short trade because price has broken previous support and looks like it will continue to move down.

However, what if your chart looked like this, going into the weekend?

There's no clear direction on this chart. Price is in a range and hitting a local support level. This is an example of when you might want to get out.

Again, there are no set rules here. Looking at the price action is just one criteria to consider, and can be very subjective.

Therefore, if price action isn't giving you a clear course of action, here are more factors to consider.

Overall Market Volatility

Now take a look at the overall volatility of the market. In times of uncertainty, like during wars or global disease outbreaks, the markets can become very unstable.

This can lead to very erratic price moves that don't seem to have any rhyme or reason.

So if you are in that type of environment, consider closing your trade out before the weekend. You will probably sleep better and you won't be affected by the choppy moves that can happen when the market opens again.

Are There Any Big News Announcements Coming Out?

News events can create temporary price shocks, especially if they happen over the weekend. That's why it's a good idea to keep an eye on news events with an economic calendar like this one.

Use the filter and only track the high-impact events. They are usually the only news announcements worth tracking.

Not all traders use fundamental data to make trading decisions, of course.

But if you are on the fence about if you should keep a position or not, then looking at upcoming news events can help you decide.

You can even download mobile apps that will send you alerts on upcoming news.

How Profitable is the Trade?

Another factor that can help you make a decision is the profitability of the trade. If you are only profitable by 5 pips (or slightly negative), going into the weekend, you may consider closing the trade immediately.

Then you can get some rest over the weekend and look at it with fresh eyes when the market opens again. With that small of a profit or loss, there's a good chance that you can still get back in at your original entry price, without the risk of holding the trade over the weekend.

Now if you have a trade that has a 150 pip profit and it looks like the move will continue, then you might consider holding out for the additional profit. Even if the market gaps 50 pips against you on the open, you'll still have 100 pips of profit to play with.

Giving the trade a little extra space to fluctuate can lead to bigger profits.

Your Current Trading Psychology

A final factor that you should consider is your current psychology.

Are you in a big drawdown, and would another loss destroy your confidence? Then it might be better to close the trade out and start fresh next week.

On the other hand, if you are on a winning streak and your confidence is high, then it might be better to keep the trade open because it won't have a big impact on your psychology.

Don't underestimate the effect that a trade can have on your mindset. Even if there is a good technical reason to keep a trade open, maintaining your “psychological capital” is even more important.

Holding Positions Overnight

Should you hold positions overnight?That really depends on the timeframe that you're trading on.

If you're scalping or day trading, then holding your positions overnight can be a huge risk. It's generally not a good idea to hold for that long because there can be very illiquid times when price can spike and lead to big losses.

However, if you are swing trading or position trading, then holding your positions overnight is usually not a problem. Since you'll generally have wider stop losses, you usually won't be affected by illiquid periods.

Again, it depends on your trading strategy, but holding positions overnight usually isn't as big of a risk in Forex as it can be in other markets.

Do Forex Trades Close Automatically?

Some new traders wonder if there is anything that would cause their trades to close automatically and prevent them from holding a trade for a longer period of time.

There are only 4 scenarios where a Forex trade will close automatically.

The first way that a trade will close automatically is if you set a stop loss or a take profit on the trade.

This is straightforward.

If you set a level to get out of the trade, that will close the trade automatically. A trailing stop will also close your position automatically, by trailing the stop loss at a predetermined distance from your original stop loss level.

Next, a trade may close automatically if you're using an automated trading program like a MetaTrader EA or a TradingView script.

If you want a program to manage your trades for you, a MetaTrader EA or TradingView Script are the best places to start. They will allow you to define specific scenarios when your trades will close.

You don't have to manage all of your trading with a program. You can use Incremental Automation to manage the parts that don't need your input, but still manually control the parts in which you want to have the final say.

Don't know how to code?

No worries, just find a programmer to make your idea a reality. You can get a free guide on how to do that, along with a list of programmers, here.

A third way that your trades will close automatically is if you don't have enough margin in your account.

This is called a margin call.

Since the Forex markets make such tiny moves, using leverage is required to make a decent profit on currency trades. You are able to trade on margin (leverage) by borrowing money from your broker.

Your broker keeps a portion of your account on “hold,” as a deposit for the amount of money that you borrowed. If the available margin in your account runs out, you cannot trade anymore.

At that point, your broker will automatically close your positions, until you are able to fulfill their margin requirements. Contact your broker to find out how much margin you need to keep in your account.

Finally, your trades will close automatically if your broker goes out of business.

Yes, that may be obvious to you, but I point this out for a reason. Some new traders don't think about this when they are looking for their first broker.

If your broker isn't regulated, isn't well capitalized or engages in shady business practices, you could lose your entire account…overnight. That's why it's important do your homework on your broker and find out if they are reputable.

These are the brokers that we recommend.

Final Thoughts on Keeping a Forex Trade Open

That covers all of the things that you need to know about keeping a Forex trade open.

The easiest way to make a decision to have a trading plan or strategy.

When you have a tested trading strategy, you can reference the data to figure out the answers to the questions addressed above. Without this data, you are trading blind, or using “intuition” that may or may not be properly trained.

To learn how to test your trading strategies, this course will help.