How to hold trades overnight

Some traders say that you should never hold trades overnight because it's risky. But what if you got into a rare big pip trade which you know will take a few days to hit TP?

If you close it before going to sleep you may be leaving a lot on the table. But if you leave it running you risk of being stopped out during rollover and not making anything.

I wrote some spread tracking EAs and watched a few pairs on different brokers. Spread during rollover usually go up to 12-30 pips depending on the pair (higher spreads on minor pairs). However, knowing that the broker can assign you individual quoting based on the trades you're running, you should assume at least 30p spread risk on any pair. To be on the safe side, that would mean having a stop of 50p during rollover for short trades to avoid being stopped out by the invisible asking price (variable spread). But that sounds like a risky proposition especially if you're in a 50/50 chance trade. So how can we approach this better?

I observed that whenever I would take a longer running (swing) trade, in about 80% of cases the price at 1:30 (of the new day) would be around the same or better compared to the price at 22:30 (of the previous day). If not at 1:30 then there's also a good chance price will come back to a favourable level during the night. Also, since I tracked spreads, I observed that they get increased between 23:00 and 1:00. Before and after the conditions are normal. 

So the strategy here is to simply exit the trade at 22:30 and open it again at 1:30, or create a limit order if price has moved already. But the interesting part is that in most cases price will not have moved much because that's the nature of rollover period. That way you don't need to add 50p extra risk to your short trades, you also lock in some profits before midnight and you're still open for taking more profits during the following trading day. You can do this manually or you can code an EA for that. I wrote an EA for myself, if you need it you can contact me.

Now how about long trades? They're safer in the sense that they can't be stopped out by the invisible asking price. But it's quite common that during rollover the price gets moved down to take out the most recent swing low by a few pips. The solution could be to simply put your SL 10-20p below the most recent swing low. But that also poses unnecessary risk. If the market gaps after midnight, your SL may be filled with large slippage anyway. So the better alternative is to follow the same rules as for short trades: exit at 22:30, re-enter at 1:30.

Of course no need to follow these rules for all overnight trades. If your target is 150p away and price has already moved 100p then your vulnerability to rollover tricks is almost not existent. The best thing to do in this case is don't change anything just wait, and make sure you didn't trail your SL too close to pre-rollover price (best to leave it at breakeven).

If you have any other questions about forex trading, let me know.