Taking Advantage of Stocks Movements After the Close
Trading big moves in the after-hours would be stock trading’s Wild West. If volume is low(er) and fewer traders are engaging in buying stocks, moves can be extreme and rapid. It means enormous profit potential but also a large threat, and in certain scenarios, it might be rather difficult to even ascertain what that danger is.
Before trading the aftermarket movers, let’s first look at what”after hours” is? Is it that stocks proceed ? How to find later hours (big) movers and the advantages and disadvantages of trading after hours and some trading strategies.
Article market movers
01 After Hours Trading Definition
Trading ground before market trading begins
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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 action, as institutions and banks are also open during this time period. It is also the period for that opening and closing costs are quoted (on sites and in newspapers). The cost at 9:30 AM is available, and the price at 4 PM is shut.
Although this period of time provides the official open and close and most of the quantity happens between those times, trading occurs outside these hours.
Pre-market trading is from 4 AM (NASDAQ) and 7 AM (NYSE, however 4 AM to get NYSE ARCA securities) EST to 9:30 AM EST.. The stock exchange trades its hours. Trading that occurs between 4 PM EST and 8 PM EST is called after Forex trading or hours.
02 Why Stocks Move After Hours
Financial analyst study data released after market hours.
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There are may be dealers who want to get into or out of places, which keeps the action going after the official closure. It might occur in stocks which do many millions in volume a day. These large volume stocks may regularly have some aftermarket activity each day. Many stocks, especially ones with lesser volume during the session, may have.
News events, like earnings, are discharged after hours. Earnings can cause huge movements and are a crucial metric which institutions and investors use to determine if they want to purchase or sell a stock.
When earnings are released after hours, traders attempt to act on the information (expecting to get a jump on most of the investors and traders that won’t be trading until the next day). It causes rapid and sizable moves at the share price. This volatility attracts day traders that look to enter and exit trades for a fast profit.
In the end, stocks proceed during the standard session they move after hours for exactly the exact same reason — people are buying and selling.
It is crucial to note that because people can trade after hours, doesn’t mean trading takes place in most stocks. When there is very little interest in a stock, it may have no after-hours trades (remember, to get a transaction to occur there should be a buyer and seller that are prepared to transact at the same price). Earnings at a relatively unknown company may not draw in any trades while earnings in large companies create a great deal of after-hours activity.
03 Locating After Hours (Big) Movers
Clock showing the market is in After-Market trading hours.
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For dealers interested in jumping following earnings into trades, or day traders that are interested in trading the volatility, there are a couple of places to look.
Businesses publish, in advance, when they will be releasing earnings (and whether it will be after hours). All earnings are recorded on Yahoo! Finance.
Dealers can track stocks which are moving after hours by checking the MarketWatch After Hours Screener or the NASDAQ After Hours Most Active listing.
Most trading and charting platforms also offer some form of this pre-market and after-hours list that is busy. Check to find out whether this operation is available to you.
As mentioned above, earnings in companies that are well known offer you the very best trading opportunities. Cost movement and quantity will be needed, so if no one cares about the stock then the quantity isn’t likely to be there (although a couple of traders may get the price to move).
04 Pros and Cons of Trading After Hours
Chart showing the favorable motion in a stock after the market closed.
There’s one Key benefit to trading after hours, and that is:
With active traders, somebody can nab once more liquidity moves the industry prices that may not be available.
Unfortunately, this advantage also has a drawback. Less competition means:
Erratic price moves
While it’s possible to find some positive rates and transactions after hours, you could also be on the losing end of the deal (you might be the one giving a fantastic price to someone else). With quantity that is sporadic and price swings, if you end up on the wrong side of a move it could be devastating. There might be lots of volume at the stock overall, but not always in the price you wish to get in or out at.
Another disadvantage is that what looks like a simple trade on a graph may actually not be. The attached chart indicates an earnings release right after the bell. In the first minute after the launch, the price jumps more than $2.75, but just on 10K volume. That means hardly any individuals could obtain this inventory (or cover short positions). Within another second, the price moved up by over $1.50, and 14K shares changed hands. Within another minute, the price rallied more than $2.15 on 27K. This may seem like decent volume, but with a lot of institutions and traders all attempting to buy hardly any stocks over a span of $6.50, it is tough to catch a bit of a pie.
As the stock price begins to settle down around 4:15 PM (16:15 on the graph ), more traders are capable (or willing) to take part and volume rises. There was still movement for transactions, though lots of the motion had already occurred by 4:15 PM. Between 4:15 PM and 5 PM the inventory covered a more than $0.80 range.
The con here is that the huge moves are hard to get in on. The pro is that there’s normally an opportunity to get some transactions in after the first pandemonium has escalated and there is still quantity (or increasing quantity ).
05 How to Trade in Following Market Hours
Showing Impulse-Pullback-Consolidation on 1-Minute Stock Chart
Some dealers choose to come up with specific strategies for trading after hours or for news events, but generally the after-hours strategies used will be quite similar to those used during regular trading hours.
Dealers might opt to use a trend following strategy or a news-related plan. While the strategy guidelines are the exact same for trading after hours and during market hours, extra accommodation should be made by traders for bigger price moves volume, and improved spreads when trading after hours. These variables could render prevent losses unsuccessful, which means an increased risk of losses. For this reason, consider reducing your position size (in what you would normally trade during regular market hours) if trading after hours.
06 Final Word on Trading After Hours
Hours can be worked by Dealers at trading desks.
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In US stocks trading occurs between 4 PM and 8 PM. That doesn’t mean all stocks have trades that take place, while following hours trades can be placed in this time. Most stocks don’t. With no one prepared to purchase or sell anywhere close to the final price of the day most stocks are ghost towns, Following 4 PM.
Stocks that do millions of shares a day may see some after-hours activity.
Earnings can cause big price moves and bring a lot of traders (volume) into inventory after hours. But more, not all of stocks will undergo enough quantity to justify day trading after hours.
Use similar strategies to what you use intraday, but pay particular attention to the possibility of larger price moves volume, and spreads. Think about reducing your position size to compensate.