Holding Overnight

Week 6 · Swing trading and gap risk

Course lens

How can a small retail trading account survive execution friction, drawdowns, leverage, and increasingly complex instruments?

The question this week answers

What happens to a carefully sized swing trade when price can reopen beyond the planned stop before the account has a chance to act?

The point is not to find a “best” trading style or instrument. It is to understand what can make the account fail.

By the end of this lecture

  1. define swing trading by its days-to-weeks holding period
  2. reuse Week 4’s chart language and Week 5’s position sizing
  3. build a full six-part swing plan for a simulated setup
  4. identify overnight gap risk as a failure mode the planned stop distance may not fully capture

The six-part plan still matters

Observation → Assumption

Describe the trend or setup, then state what you’re assuming about continuation

Entry → Invalidation

Choose the price to enter and the condition that proves the idea wrong

Risk → Exit

Size from the risk budget, then define how the position closes either way

A stop controls the intended exit. An overnight gap can control the actual one

Swing trading reduces intraday noise but introduces a risk day trading avoids entirely — the market can reopen beyond the planned boundary.

A worked setup

A simulated watchlist entry, “Fernbridge Retail”: a three-week uptrend, 20-day moving average sloping upward.

Simulated daily candles, Fernbridge Retail — three-week uptrend

Entry on a pullback at $48, invalidation near $45, target $54. Week 5’s sizing uses that $3 planned stop distance — but overnight gap risk can make the realised loss larger.

The numbers: the original sizing still works — until execution skips the stop

$10,000 × 1% = $100 risk budget


Planned stop distance: 48 − 45 = $3 → 100 ÷ 3 = 33.3 → 33 shares


Planned risk: 33 × $3 = $99



Overnight gap to $43: realised distance = $5/share


33 × $5 = $165 — before any further slippage

The gap is simulated. It illustrates why a stop level is not identical to a guaranteed maximum loss.

A planned stop can be jumped overnight

Day 1 close $48, planned stop $45 → next day opens at $43

A $3 planned loss per share can become $5 before an order has a chance to execute

Try it yourself

Stress-test the plan

A simulated setup: entry $30, invalidation $28, target $35, on a $15,000 account risking 0.5% per trade.

Calculate the original position size and R-multiple. Then assume the next session opens at $27.20 — what is the realised loss if that is the first executable exit?

The takeaway

  1. Swing trading keeps the same six-part plan structure as Week 5.
  2. Moving averages remain descriptive, not predictive.
  3. Overnight exposure adds gap risk: the planned stop and the realised exit can diverge.
  4. Week 7 removes overnight exposure but makes execution friction much more frequent.

Next week

Week 7 — day trading: liquidity, slippage and VWAP, when holding periods shrink to hours.