The main fear in overnight position is the gap openings. See below daily chart of nifty for the past few months. Red bars are the days price moving down and green bars are the days price moving up. Observe the gap openings between the bars. If price gap open against your position you should be able to withstand that loss (financially and psychologically).
Few Traders there is a temptation to hold their position overnight, particularly if the market has moved against them during the day.
This is a hazardous strategy, as we will discover in this article.
If your risk appetite is moderate then you should definitely hedge your positions, it is not safe to carry overnight. If you have surplus trading capital, you can allot a portion of it for such high risk trades. with the risk comes the reward.
Why hold overnight?
First of all, let’s consider why a day trader might hold a position until the next session.
The most likely reason is that they did not want to close out a loss and so have put their faith in the hope that the market will move in their favor overnight.
Did you see the key word there – ‘hope’?
As a trader, if you are carrying overnight position,
- Are you glued in front of computer screen once trading in India Market is over, continuously tracking financial news around the globe.
- Do you continuously track European market, US markets.
- Do you have Eagle Eye on SGX nifty and any move against your position increases your heart beat.
If you are having the above characteristics it means you are fearful about your trading positions and trading success can never come to a person who is not at peace with his/her mind.
There really is one simple “fear test” that I have found to be very effective for most traders.
That test is simply to gauge how you feel at night before you go to bed while you have a trade on.
If you find that you can’t stop thinking about your trade(s) or you are glued to your computer screen while you should be sleeping, you are still experiencing fear of losing. So here’s a very simple test for you:
One simple rule if you can’t go to sleep at night feeling comfortable and at ease with the trade(s) you have on
1) You’re either trading too big of a position size / risking too much at your stop level — No Risk/ Money Management Tools
2) Or, you have no idea what you’re doing and lack confidence in your trades — No Trading System
If you can go to sleep with ease it means you are on right track and trading success will come your way.