An end of the day trading strategy simply means to make trading decisions very near to, or after the markets close. Whereas day traders watch charts all day, opening and closing trades when they choose, end of day traders typically trade at the close or the open.
End-of-day trading is a deliberate strategy in which traders choose to place trade orders after the New York stock market has closed for the day. This allows them to outline their strategy and create pending orders for the next day while time is effectively paused (i.e., when no trades are occurring).
The Benefits of End-of-Day Trading
After the market has closed, traders are free to review changes in price action that occurred, analyse closing price candlesticks, and interpret any signals that manifested during the day with greater clarity and context.
The two greatest benefits of end-of-day trading are the added context and flexibility that this strategy provides. Without the pressure of responding to price movement in real time, you can conduct various technical analyses to identify trend strength and momentum, establish support and resistance levels, and confirm the validity of buy and sell signals before acting. Doing so allows you to lay out a more deliberate trading strategy and place orders with greater precision based on the insight you’ve gathered. By focusing on daily price action charts rather than on intra-daily charts, it’s also easier to identify overarching market trends that will affect long-term trading outcomes.
In addition to these strategic benefits, end-of-day trading also has practical appeal in that it doesn’t require you to manually enter orders during trading hours. In other words, it makes it possible to hold a day job and still execute a deliberate and informed trading strategy. Outlining your orders before the beginning of the trading day also forces you to pre-emptively weigh risks and rewards and place orders and profit targets that coincide with your ideal risk-to-reward ratio, regardless of how the market moves. This removes some of the emotion from trading and allows you to establish a consistent strategy and track the results of your decisions.
How End-of-Day Trading Strategies Work
First and foremost, end-of-day trading demands a thorough understanding of the market and the current trend. If you know how the market usually behaves and can identify the strength and momentum of the current trend, you have a solid framework in which to assess buy and sell signals and determine ideal entry and exit points for the upcoming day.
Identifying the Trend and Determining Your Position
End-of-day trading is easiest in trending markets that oscillate between long uptrends and long downtrends and reverse after reaching established overbought and oversold levels. Using trend-following, trend-confirming, and overbought and oversold indicators, you can gauge if a strong trend is under way and place pending orders that coincide with the direction of the current trend. That would mean taking a bullish position in an uptrend and a bearish position in a downtrend.
If, on the other hand, your technical analysis reveals that price is reaching overbought and oversold conditions or that a divergence has occurred between price movement and market momentum, you may decide to place a limit entry order that goes against the current trend at the anticipated market pivot point. For example, if price is in an uptrend and you’re expecting a reversal, you would place a sell limit entry order above the current price at the anticipated pivot point, as illustrated.
In addition to trading with the current trend or anticipating reversals, it’s also possible to use a grid trading strategy to capitalize on trend breakouts. A grid trading strategy places buy and sell orders at set intervals above and below the current market price, eliminating the need-to-know what direction the breakout will take.
When using a grid trading strategy, however, it’s exceptionally important to close out pending orders that weren’t triggered and be diligent about placing stop-loss orders as well as profit targets.
Placing Stop Loss Orders
Stop loss orders help mitigate risks by limiting losses in the event that the price direction moves against your expectations. Stops can be fixed value or can change relative to price movement, or what’s known as trailing stops. After you’ve decided what position to take and placed corresponding stop entry or limit entry orders, the next part of any end-of-day trading strategy involves placing stop loss orders for each position opened. For a bearish stop entry order placed above the current market price, you should create a corresponding sell stop loss order below the current market price, as shown in the graph (Trading with an Uptrend).
For limit entry orders, a stop loss order should be placed in the same direction as the buy or sell limit entry order to curb losses in the event that the trend continues rather than reverses.
When determining how far away from price to place stop entry, limit entry, and stop loss orders, take support and resistance levels into account along with the location of buy and sell signals and the amount of risk you’re willing to shoulder. The most successful strategies are realistic and use technical analysis to confirm ideal entry and exit points.
Keeping Track of Your Trades
Once you’ve placed all your pending orders for the following day, your orders will automatically be triggered the next day without the need for any manual action. That said, it’s important to revisit your positions at the end of the next trading day to evaluate if they’re still valid based on the most recent price movement. A trailing stop will shift position relative to price movement, but other entries and exits may need to be manually closed or adjusted to account for changing risk and reward levels. For the best results, make sure you frequently monitor results as well as re-evaluate your positions in light of new insight or market moving events.