Thereare simple and in-depth answers to the question of how long you should hold a day trade (or a trade of any time length). Is there a sweet spot? If you buy, should you hold the trade through a pullback or try to pick mini-tops and bottoms? Is holding a trade for an hour too long, or one minute too short? How long you tend to hold your positions will have a direct impact on profitability, so it's important to consider if you want to improve.
Key Takeaways
- Ideally, you should hold your trades for as long as your trading plan specifies.
- If you exit before a pullback, or near the start of a pullback, you'll typically have smaller winning trades, but you'll win slightly more often.
- Practice in a demo account and see which method results in the most consistent performance.
Trade According to Your Trading Plan
Trade exactly how your trading plan tells you to trade--whether that is how long you hold trades or how often you trade. That simple advice will serve you well once you have a trading plan, but if you're just starting, and don't have a plan yet, that advice won't help you much. The following guidelines will help you formulate a plan for how long you will trade, based on the type of trader you want to be and your natural inclinations.
Notice the Price Waves
Prices don't move in a straight line. If the price is rising (uptrend), it will rise, pull back, and rise again. If we bought on the initial rise we can't be certain the price will rise again after the pullback. That only becomes evident in hindsight.
If the price is falling (downtrend) it falls, pulls back, and then falls again. If we went short on the decline though, we can't be certain the price will continue to fall following the pullback. When deciding how long you will hold your trades, one of the first decisions you'll make is if you'll hold through pullbacks or not.
This also isn't an easy question to answer. Constant gyrations in the price mean tiny pullbacks are occurring all the time. Therefore the trader must define what a pullback means to them and whether they are willing to hold it.
Not holding through a significant pullback means profits are limited to how much the price moves in a single thrust in your direction. If you are willing to hold through pullbacks, then you can potentially capture bigger profits because you may end with the price making multiple waves in your direction.
Example
For example, let's say you typically hold for one thrust in your anticipated direction (you don't like holding through pullbacks). You buy at $20 expecting the price to go higher. It moves to $20.10 relatively steadily, starts to consolidate and then begins to drop a little. You exit your trade at $20.07, for a $0.07 profit per share (total profit is $0.07 times your position size).
Another trader also enters long (buys) at $20. They are willing to hold through a pullback or two and may have a stated profit target at $20.20, for example. Instead of exiting during the pullback (as the trader above did) they opt to hold.
The price declines to $20.05 and then starts to rise again, reaching $20.15. There again it stalls out and begins to decline. It declines to $20.12 and then proceeds higher to $20.23. This trader held through a couple of pullbacks in order to attain their target price of $20.20. They have a bigger profit on one trade than the first trader.
You can base your profit target on how much the price typically moves in one wave (thrust) or how much it moves in several waves, or be based on some other factor such as chart patterns (trianglesor flagsas examples) or a risk/reward ratio.
The first trader could take more trades though; they could have traded each wave higher, collecting small winning trades each time. The two traders could end up with similar overall profits, but the first is more active (taking three trades) while the second trader is less active (one trade).
The Trade-Off
As stated earlier, we can't be sure a trend will continue following a pullback. The trader who holds through some pullbacks is assuming it will, and by doing so will typically have larger winning trades.
The trader who exits before a pullback, or near the start of a pullback, will typically have smaller winning trades but is likely to win slightly more often. The reason is that some trades that pullback will not continue to trend, and may reverse course. The trader who goes for the smaller profit takes their profit and is out of the trade before the reversal. The trader who holds through the pullback watches their profits evaporate and is now facing a losing trade.
Which Option Is Right for You
There is no right or wrong choice. Practice in a demo account and see which method results in the most consistent performance and profitability over many trades. Some traders may find they don't like holding through pullbacks and prefer to be more active, attempting to capture small profits from each price wave.
Other traders may find constantly buying and selling drives them nuts, and holding each trade for a bit longer (and a potentially larger profit) is a better option. Define exactly how and why you will take profits, and write it down in your trading plan. Then follow those guidelines on each trade, so you know exactly what to do in a given circ*mstance, so you aren't changing your approach with each trade or in the midst of a trade.
FAQs
The opening period (9:30 a.m. to 10:30 a.m. Eastern Time) is often one of the best hours of the day for day trading, offering the biggest moves in the shortest amount of time. A lot of professional day traders stop trading around 11:30 a.m. because that is when volatility and volume tend to taper off.
How long should you hold onto a stock? ›
Though there is no ideal time for holding stock, you should stay invested for at least 1-1.5 years. If you see the stock price of your share booming, you will have the question of how long do you have to hold stock? Remember, if it is zooming today, what will be its price after ten years?
How long does it take to be a good day trader? ›
Like any other endeavor you seek to master, you must be a good student and diligently practice daily. Not to be dismal, but only about 4% of people will make it as successful day traders. Further, it takes about six months to a year of hard work before seeing those consistent profits.
How long do day traders hold a stock? ›
Day traders typically target stocks, options, futures, commodities, or currencies (including crypto). They enter and exit positions within the same day (hence the term day traders). They hold positions for hours, minutes, or even seconds before selling them. They rarely hold positions overnight.
How long does it take most day traders to become profitable? ›
Many people put in multiple years before breaking into consistent (or even any) profitability. It takes at least a year to consistently make money from day trading or swing trading, if working at it full-time or with a mentor, and only working one (maybe two) strategies. Six months is the quickest; most take longer.
What is the best timeframe for scalping? ›
Scalp trades can be executed in 1 minute, 3 minutes, 5 minutes, or even 15 minutes time frame. However, the choice depends on the trade and the asset involved. The 15 minutes time frame is not so common. Beginners generally trade around the 5 minutes time frame to strike the right advantage.
What is the 3-5-7 rule in trading? ›
A risk management principle known as the “3-5-7” rule in trading advises diversifying one's financial holdings to reduce risk. The 3% rule states that you should never risk more than 3% of your whole trading capital on a single deal.
What is the 10 am rule in stock trading? ›
Some traders follow something called the "10 a.m. rule." The stock market opens for trading at 9:30 a.m., and the time between 9:30 a.m. and 10 a.m. often has significant trading volume. Traders that follow the 10 a.m. rule think a stock's price trajectory is relatively set for the day by the end of that half-hour.
Do you make more money the longer you hold a stock? ›
Benefits Of Holding A Stock For Long Term
Long-term investments almost always give you more gains and profits and they outperform the market when the investors try and hold on to their investments and time them accordingly. Secondly, the biggest advantage of holding a stock for the long term is that it is less costly.
How much money do day traders with $10,000 accounts make per day on average? ›
With a $10,000 account, a good day might bring in a five percent gain, which is $500. However, day traders also need to consider fixed costs such as commissions charged by brokers. These commissions can eat into profits, and day traders need to earn enough to overcome these fees [2].
Day traders often buy and sell stock the same day, buying at a perceived low point during the day and then selling out of the position before the market closes. If the stock's price rises during the time the day trader owns it, the trader can realize a short-term capital gain.
Can day traders really make money? ›
The overwhelming majority of day traders lose money. While a select few are able to generate steady profits, these are generally people who had careers in the financial industry or who have devoted themselves to studying markets. Successful day traders apply themselves to the practice as a full-time job.
Can you live off day trading stocks? ›
If you don't have much capital, and don't have a lot of time to commit, the odds of making a living from day trading are remote. It is possible, but it is going to take a lot of time and discipline to build a small account into something that can produce a living.
Who are the most successful day traders? ›
Stock traders are also called speculators of the market as they tend to enter and exit in a short span. Traders can be individuals working on their own or professionals working for a financial company. The greatest three traders in the history of trading are George Soros, Michel Burry, and David Tepper.
What is the best strategy for day trading? ›
Common day trading strategies include Momentum, Breakout, Range, Reversal, Gap, Trend Following, Mean Reversion, Scalping, News, Pattern, Support and Resistance, Fibonacci, Volume Spread Analysis (VSA), Event-Driven, Arbitrage, and Statistical Arbitrage, each with its own set of rules and indicators for entering and ...
What is the 15 minute rule in stocks? ›
A buy signal is given when price exceeds the high of the 15 minute range after an up gap. A sell signal is given when price moves below the low of the 15 minute range after a down gap. It's a simple technique that works like a charm in many cases.
What is the 10 minute trading rule? ›
10 minute chart trading involves making such transactions within a 10-minute frame once you've successfully identified a pattern. Your goal, as a trader is to see where the prices are going. Then you buy/sell and then sell/buy within 10 minutes, and you can do this as many times as you like.
