The end of day trading strategy involves trading near the close of the stock market. End of day traders become active when it becomes clear that the price is going to ‘settle’ or close. This is the time when most market participants are closing their positions and preparing for the next trading day.
End of day trading typically occurs during what is commonly referred to as “power hour.” The power hour is the last hour of the trading day, from 3 to 4 pm EST, when volume and volatility are typically highest.
During this time, End of day traders may be looking to take advantage of last-minute price movements or news. They may also be trying to avoid holding a position overnight when anything can happen.
Benefits of End of Day Trading
End of day / Power Hour trading strategies can be used on any financial instrument, including stocks, Forex, futures, and options. A few benefits include:
Suitable for Most Traders
End of day trading can be a good way to start trading, as there is no need to enter multiple positions.
Less Time Commitment
Traders can analyze charts and place market orders either in the morning or at night, so it can be significantly less time-consuming in comparison to other strategies. By placing your trades at the end of each trading day, you don’t need to spend time watching the markets all day and can avoid being distracted by the news.
End of day trading can often lead to cheaper rates. If you are trading stocks or futures, for example, you may need to pay fees for intraday data. End of day trading is all about trading with closing prices. Many online brokers do not charge for this service. Because the end of day prices are widely available from everywhere, you do not have to pay additional sums to gain real-time market data.
Drawbacks of End of Day Trading
Despite the benefits, End of day positions can incur more risks. You can either make huge profits, or your stops can be triggered even before you had a chance to adjust your risk parameters. This risk can be mitigated if you place a stop-loss order. Stop-loss orders are designed to limit losses if the price moves against the trader. Limit orders are designed to take profits if the price moves in the trader’s favor.
Here are a few additional things you should be aware of.
You are also at risk of reduced liquidity with the end of day trading. In other words, liquidity typically dries up during power hour. This means that there may be fewer buyers or sellers, making it more difficult to execute trades.
End of day traders need to be aware of the potential for price gaps. A gap is when the price moves sharply up or down with little or no trading in between. These can occur at the open or close of markets, or during power hour.
End of day traders need to be aware of the potential for price manipulation. This is when someone with a large position tries to move the market in their favor by entering trades that push the price in the desired direction.
Power Hour Strategies
If you’re new to trading, then you may be wondering what some of the best end-of-the-day trading strategies are. Here are a few to consider:
Buying Calls or Puts
Which strategy you use will depend on your outlook for the market and your risk tolerance. If you are bullish on the market, you may want to consider buying calls. If you are bearish on the market, you may want to consider buying puts.
Selling Covered Calls or Puts
If you are bullish or bearish on the market, you may want to consider selling covered calls or puts. Covered call writing is a strategy that involves selling call options while simultaneously holding an equivalent number of shares of the underlying stock. Put writing is the opposite, involving the sale of put options while simultaneously holding an equivalent number of shares of the underlying stock.
Buying Straddles or Strangles
A straddle is an options strategy that involves buying a call and a put with the same strike price and expiration date. A strangle is similar, but with different strike prices. These strategies can be used if you expect the market to be volatile, but you are not sure which direction it will move in.
Using Supportive and Resistive Levels
These levels can help you identify potential areas where the market may reverse. Support and resistance zones are key price levels that traders watch to enter and exit trades. These areas are created when the price action of an asset refracts or rebounds off a particular level multiple times. When the price action reaches a certain level and then starts to move in the opposite direction, that level is considered a support or resistance zone.
Looking for Breakout Opportunities
These can occur at the end of the day when the markets are getting ready to close.
Using Fibonacci Retracements
These levels can help you identify potential support and resistance areas. Fibonacci retracements are technical analysis tools that Fibonacci fans believe can predict where a stock price is likely to rebound after a sell-off.
Using Candlestick Patterns
A candlestick pattern is a formation that appears on a chart and looks like a candlestick. Candlestick patterns can be used to predict future market movements, as they often indicate reversals or continuation of trends.
There are many candlestick patterns, each with its own meaning. Some of the more common patterns include the hammer, the inverted hammer, the shooting star, and the Doji. Candlestick patterns should be used in conjunction with other technical analysis tools, such as support and resistance levels, to make more accurate predictions.
Using moving averages. A moving average is a technical indicator that shows the average price of a security over a set period of time. Moving averages are used to smooth out volatility and help traders identify trends. There are different types of moving averages, including simple, weighted, exponential, and linear regression. Moving averages can be used on any time frame, but are most commonly used on daily and weekly charts.
Why do moving averages matter?
Moving averages are important because they show trend direction, identify support and resistance levels, and can be used to generate buy and sell signals. Trend traders often use moving averages to enter and exit trades, as well as to set stop-losses. It is important
These are just a few of the many end-of-the-day trading strategies that you can use. The End of day trading strategy that a trader uses will depend on their individual goals and objectives. Some traders may want to take quick profits, while others may want to hold onto their positions for longer periods of time.
Each of these strategies has its own risks and rewards, so it’s important to understand each one before implementing it.
Beyond Power Hour
End of the day trading does not always end at 4 pm EST. This period may also be later in the evening or at nighttime when most people are winding down and getting ready for the next day. However, there are some traders who are just getting started. These “night owls” often have different strategies than those who trade during the daytime.
If you’re interested in trading after hours, there are a few things you should know.
- The markets are usually much quieter during this time, so it’s important to have a strategy that takes this into account.
- As previously mentioned, liquidity is often lower, so you may not be able to get out of a trade as quickly as you’d like.
- It’s important to be aware of the potential for increased volatility.
While trading after hours can be riskier, it can also lead to some big profits. If you’re willing to take on the extra risk, there are some great opportunities to be had. Just make sure you’re prepared before you get started.
With that said, end of day trading strategies are perfect for those who want to take advantage of the fact that closing prices are widely available from everywhere. Strategies often include:
Taking advantage of international markets. If you live in the United States, the majority of the world is still awake and trading. This can provide opportunities to take advantage of different time zones and trading activities.
Reacting to after-hours news. There are often breaking news stories that happen after the markets have closed for the day. These can provide trading opportunities if you are able to react quickly.
Taking advantage of different market conditions. The end of the day is often a time when the markets are less active and there is less liquidity. This can provide opportunities for those who are looking to make quick trades.
Fading the late-day rally. Many times, the markets will rally towards the end of the day. This can provide an opportunity to short the market and profit from a decline.
Going against the crowd. The majority of traders are often wrong about the direction of the market. By taking a contrarian approach, you may be able to profit from their mistakes.
These are just a few of the many end-of-the-day trading strategies that you can use. Find one that fits your style and start using it to make profits in the markets.
Summary: End of Day Trading Strategy
End of day trading can be a great way to trade if you have a full-time job or other commitments. It can also be cheaper and provide more flexibility than other strategies.
However, it is important to be aware of the risks, including liquidity risk, price gaps, and price manipulation. If you are new to trading, consider buying calls or puts, selling covered calls or puts, or buying straddles or strangles. When trading at the end of the day, remember to:
Set a target profit for the day. This will help you lock in profits and limit losses.
Use stop-loss orders. These will help you limit your losses if the market turns against you.
Use limit orders. These will help you take profits when the market is going your way.
Be patient. Don’t force trades. Let the market come to you.
Stay disciplined. Follow your rules and don’t let emotions get in the way of your trading.
Following these tips can help you successfully day trade the last hour of the day. Remember to always use risk management techniques to protect your capital.
At the same time, since we are day traders, we never hold overnight and, instead, close out all our positions the same day.
To Learn More
Maurice Kenny has helped over 600 people become financially free through one-on-one coaching, mentorship, and options trading strategy. Many of these new traders are now full-time traders, and they all started by watching his 1-hr webinar.
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