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How to Enter the Market With an End-of-Day Trading Strategy
There are so many trading strategies out there, and it can feel intimidating for those just getting their feet wet in the world of trading. The immediate thought is that trading will require you to spend your day stuck in front of a screen deciphering market patterns and spotting opportunities. This is mostly true for day traders. Alternatively, an end-of-day trading style will enable you to manage part-time trading.
What is End-of-Day Trading?
End-of-day trading refers to the trading style characterized by opening and closing positions very near to the market’s close. This trading style is suitable for people who are not actively involved in the daily market. As its name suggests, end of day trading only happens at a specified time right before the trading session ends. Advanced end-of-day traders prefer to analyze the market, strategize during the day, and act before the market closes.
The Importance of Stop Loss Orders
You have no doubt seen the phrase “Always use a stop loss, and stick to it”. This is a true statement. If you are serious about staying in the game for the long-haul setting stop orders are imperative.
Stop losses help to mitigate large and uncontrollable losses in volatile trades. Traders can set stop orders as either fixed-value or they can change relative to price movement (trailing stops). Once you have decided on your position and placed corresponding stop entry or limit entry orders, the next step in your end-of-day strategy will be to place orders for each position you have opened.
The Benefits of Adopting an End-of-Day Trading Style
End-of-day traders look for opportunities by performing a daily sweep at the end of the day. There is an overwhelming amount of news that comes in during a busy trading day. This news can influence market prices and distract even the most experienced traders. Therefore, by getting into end-of-day trading, much of the daily pressure associated with intraday trading and monitoring the charts is eliminated.
An end-of-day trading style also allows for a cost-efficient approach to the market. The more positions a trader has, the more they have to pay out, i.e, in commissions, spreads, and fees. End-of-day trading generally goes with fewer trades compared to other trading styles, namely day trading. By opening fewer positions and holding them for extended periods, you will invest a reduced amount of money. Thus, costing less and providing more chances to profit.
There is also the opportunity to capture overnight gains as the position carries over to the next day. On the other hand, it can also pose a risk. Should a negative news event occur, the market may react strongly to the downside at the opening the next day.
Ease of implementation is another benefit of the end-of-day trading strategy. It is relatively easy to go through different markets before closure and spot market inefficiencies that can be taken advantage of. Stocks, currencies, and other types of assets are simpler to analyze close to the end of the session. By then, the noise has faded. Moreover, the volumes are lower, and overall market sentiment is easier to grasp.
The Risks Associated with End-of-Day Trading
While the benefits are attractive, there are always risks to evaluate before diving into the world of trading.
An end-of-day trading style implies working around market closures. Therefore, those risks associated with holding a position overnight and any market developments that could affect your investment during this time should be considered. For example, the Non-Farm Payroll figures are released on the first Friday of the month, and prices tend to fluctuate significantly, so your trades could be affected.
For more on the market dates that may affect the assets you trade, bookmark our Economic Calendar.
Lastly, always test out your strategies on a Demo Account first. Never jump into the deep end without a strong understanding of how quickly the market can change.
To those looking to engage with the markets and still maintain their lifestyle, end-of-day trading presents an opportunity to try your hand at trading.
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