Taking Advantage of Stocks Movements After the Close
Trading big moves in the after-hours would be stock trading’s Wild West. When volume is low(er) and fewer dealers are engaging in buying stocks, transfers can be rapid and extreme. It means a large risk but also profit potential, and in some situations, it may be hard to determine what that risk is.
Before investing the aftermarket movers, let’s first consider what”after hours” is? Do stocks move ? The way to find later hours (big) movers as well as the advantages and disadvantages of trading after hours and some trading strategies.
Post market movers
01 After Hours Trading Definition
Trading ground prior to market trading starts
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Regular stock exchange trading hours in the US are between 9:30 AM EST and 4 PM EST.. It’s when the New York Stock Exchange (NYSE) and NASDAQ exchanges see the most trading activity, as institutions and banks will also be open during this time period. It is also the period for which opening and closing costs are quoted (on sites and in newspapers). The price at 9:30 AM is available, and the price at 4 PM is shut.
Although this time period provides the official close and open and nearly all of the daily quantity happens between these times, trading occurs outside these hours.
Pre-market trading is from 4 AM (NASDAQ) and 7 AM (NYSE, but 4 AM for NYSE ARCA securities) EST into 9:30 AM EST.. The stock market trades its official hours. Trading that occurs between 8 PM EST and 4 PM EST is known as after hours or Forex trading.
02 Why Stocks Move After Hours
Financial analyst study data published after market hours.
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There are may nevertheless be dealers who want to get into or out of positions, which keeps the action going after the official close for an hour or more. It may happen in stocks that do lots of millions. These high volume stocks may frequently have some activity each day. Particularly ones with lower quantity during the official session, stocks, might have no transactions that take place.
News events, like earnings, are often released after hours. Earnings can cause big moves in the price and are a key metric which associations and investors use to ascertain whether they want to purchase or sell a stock.
When earnings are released after hours, then traders attempt to act on the advice (expecting to get a jump on the majority of the traders and investors that will not be trading until the next day). It induces sizable and rapid moves in the share price. This volatility also attracts day traders who look to enter and exit trades for a profit.
Ultimately, stocks move during the session that is normal that they move after hours for the same reason — folks are currently buying and selling.
It’s crucial to be aware that because people may trade after hours, does not mean trading takes place in all stocks. If there is very little interest in a stock, it may have no after-hours trades (remember, for a trade to happen there must be a buyer and seller that are willing to transact at precisely the exact same price). While earnings in companies often produce a lot of after-hours action, earnings at a small unknown firm may not attract any after-hours trades in any way.
03 Locating After Hours (Big) Movers
Clock is in After-Market trading hours.
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For dealers interested in jumping into transactions or day traders that are thinking about trading the volatility, you’ll find a couple places to look.
Companies publish, in advance, when they’ll be releasing earnings (and whether it will be after hours). All earnings are recorded on Yahoo! Finance.
Traders may also track by checking the NASDAQ After Hours Most Active listing or the MarketWatch After Hours Screener stocks that are moving after hours.
Charting platforms and trading provide some kind of the pre-market and active listing. Check to find out whether this operation is offered to you.
Earnings in companies offer the very best trading opportunities as mentioned previously. Cost movement and quantity are required, so if nobody cares about the inventory then the volume isn’t likely to be there (even though a few traders may get the price to move).
04 Pros and Cons of Trading After Hours
Chart showing the motion in a stock after the market closed.
There is one benefit to trading after hours, and that is:
With fewer traders, favorable prices which might not be accessible once liquidity moves the industry again can be nabbed by somebody.
Unfortunately, this advantage comes with a downside. Competition means:
Erratic price moves
While it’s possible to get some positive prices and transactions after hours, you could also be on the losing end of that deal (you might be the one giving a good price to somebody else). With price swings and quantity that is sporadic, if you end up on the wrong side of a move it can be catastrophic. There might be lots of volume at the stock overall, but not necessarily in the price that you want to get out or in at.
Another con is that what seems to be a simple trade on a graph might not be. The attached chart shows an earnings release shortly. In the very first minute after the release, the cost jumps more than $2.75, but only about 10K volume. That means very few individuals could buy this stock (or cover short positions). In the next second, the price moved up by more than $1.50, and 14K shares changed hands. In the next minute, the cost rallied more than $2.15 on 27K. This may seem like decent volume, but with a lot of traders and institutions all attempting to buy very few stocks over a period of 6.50, it is challenging to grab a piece of a pie.
Since the stock price starts to settle down around 4:15 PM (16:15 about the chart), more traders are able (or willing) to participate and volume rises. Though lots of the movement had already occurred by 4:15 PM, there was ample movement for trades. Between 4:15 PM and 5 PM the stock covered a more than $0.80 range.
The con here is the huge moves are hard to get in on. The pro is that there is usually an opportunity to get some trades in after the first pandemonium has escalated and there is still quantity (or raising quantity ).
05 How to Trade in Following Market Hours
Chart showing Impulse-Pullback-Consolidation on Stock Chart
Generally the strategies will be similar to those utilized during regular trading hours, although some traders elect to come up with specific strategies for trading after hours or to get news events.
Dealers might elect to utilize a news-related plan or a trend following strategy. While the strategy guidelines are the same for trading after hours and during market hours, then traders must make additional lodging for spreads, lower volume, and bigger price moves when trading after hours. Prevent losses which means an increased probability of losses could be rendered by these factors. Because of this, consider lowering your position size (in what you would normally commerce during regular market hours) if trading after hours.
06 Final Word Trading After Hours
Twenty-four hours can be worked by traders at trading desks.
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In US stocks trading happens between 4 PM and 8 PM. That does not mean all stocks have transactions that take place after hours, while after hours trades can be set in this time. Most stocks actually don’t. After 4 PM stocks are ghost towns, with nobody prepared to purchase or sell anywhere close to the day’s final price.
Stocks that do lots of millions of shares a day may see some after-hours action following the close.
Earnings can cause enormous price moves and bring a lot of traders (volume) into inventory after hours. But again, not all stocks will experience enough volume to warrant day trading after hours.
Use similar strategies to what you use intraday, but pay attention to the possibility of price moves that are larger quantity, and spreads. Think about reducing your place size to compensate.