Time Rules
Deciding in advance how long a trade gets to work.
Overview
Most traders define where they exit but not when. A time rule sets a limit on how long a trade gets to work before you close it regardless of price.
Why Time Matters
A trade thesis usually contains an implicit assumption about timing. If you expect a breakout to run and it is still sitting at the same price ten days later, the breakout did not happen — even though your stop has not been hit.
A position that is not working is not free. It occupies capital, attention and emotional bandwidth, and if it is leveraged it may be accruing funding costs.
Common Time Rules
- Fixed candle count: Exit if the trade has not moved meaningfully within N candles on your timeframe
- Fixed calendar period: Close anything still open after a set number of days
- Event-based: Exit before a major scheduled event such as CPI or FOMC
- Session-based: Close intraday positions before the session ends
The Stale Trade Problem
Trades that go nowhere are psychologically corrosive in a way losses are not. They produce no information, and holding one tends to encourage rationalisation — the thesis quietly changes to fit the fact that nothing has happened.
A time rule removes that decision. If the trade has not done what you expected within the window you allowed, it is closed and the capital is freed.
Event Risk
Scheduled events introduce volatility that has nothing to do with your analysis. A well-constructed technical position can be destroyed by a macro print in seconds.
Many traders close or reduce leveraged positions before major releases, on the basis that they have no edge in predicting the outcome and no protection against a gap through their stop.
Choosing Your Window
The window should follow from the timeframe you traded. A 4H setup that needs a fortnight to work was probably never a 4H setup.
A rough guide is to allow roughly the same number of candles the pattern took to form. If the consolidation lasted twenty candles, give the resolution a comparable window.
Weaknesses & Limitations
- Time exits sometimes close trades immediately before they work
- Any window is somewhat arbitrary
- Strong setups occasionally take much longer than expected
- Over-tight time rules generate unnecessary fees
Example Use
A trader takes a 4H breakout and allows twenty-four 4H candles for it to work. After four days price is unchanged and still within the original range, so they close for a small loss and redeploy the capital elsewhere.
Risk Management Notes
A time rule is a complement to a stop loss, never a replacement. The stop defines how much you can lose; the time rule defines how long you are willing to wait to find out. Both should be decided before entry.