End-of-day trading: what is the best end-of-day strategy?

End-of-day trading is a popular way of taking advantage of market movements right before close, or even overnight. Learn more about end-of-day trading or ‘power hour’ and how you can trade it.

Trading floor 1

What is end-of-day trading?

End-of-day trading is simply the practice of making decisions very close to – or even after – markets close. Generally, end-of-day trading occurs in the last hour or two of the trading day and is specific to the stock market.

While most day traders will be looking to close out their positions at market close, some traders will choose to enter into new positions to make end-of-day profits – whether just for a few minutes before the markets close to take advantage of end-of-day movements, or to hold overnight.

End of day trading is also known as power hour, because this tends to be when a lot of trading happens, and the high volume can create a lot of opportunities. Power hour for stock markets is often considered to be between 7pm to 8pm (UTC).

Why trade at market close?

End-of-day trading is widely used by non-professional traders, who have day jobs or other time constraints. The concept of it is simple: the more time spent on the markets doesn’t equal more profits. By focusing all your energy on a smaller timeframe, you wouldn’t have to spend all day watching the markets.

Another benefit is that you’ll have the whole days’ worth of trading data to use to make decisions and evaluate.

End-of-day trading strategies

For some, end-of-day trading involves opening positions in the hour or so before the market closes to take advantage of other market participants shutting their positions or adjusting them ready for the impending downtime.

Regardless of the fact the market is going to close, the strategy for trading is much the same. You should be looking for the same signals and patterns as you would for any other trade. Before you enter any position (whether at market close or not), you should have created a set methodology for when you’ll trade. This should involve what entry level you want to see and what point you’ll exit a trade.

Another end-of-day strategy is to buy a market at close and sell it again when the market reopens to take advantage of movements that occur while the market is shut. In stocks especially – but often in other markets too – overnight returns can be significant. In fact, a study on night trading found that overnight returns tend to be higher than their intraday counterparts:1

Overnight

Intraday

Full day

Daily average returns

0.0024%

0.046%

0.067%

Daily standard deviation

1.45%

2.60%

2.85%

Annualised value-weighted returns

6.84%

3.72%

10.81%

Opening positions when markets are closing or closed enables traders to outline their plans and create orders for the next day, when there is typically less activity on the market.

How to trade market close

  1. Open a live account
  2. Create a trading plan
  3. Identify an opportunity
  4. Place an order to take advantage of a trend
  5. Close your position or attach a stop loss to automate your exit

1 Night Trading: Lower Risk But Higher Returns?, 2015



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