End-of-day trading simply means to make trading decisions very near to, or after the markets close. It’s essentially the opposite of day trading.
Whereas day traders watch charts all day, opening and closing trades whenever they choose, end of day traders typically trade at the close or the open. Instead of watching the market all day, they use the trading day to do their analysis and build strategies. Trades are often held for several consecutive days, weeks, or months.
Not all end of day traders are the same. Some may trade on the market open, some on the close, and some may send their orders to the market after the closing bell.
What all end-of-day traders have in common though is that they ignore short-term noise and refuse to trade in and out of the market at whim.
8 reasons why end-of-day trading is best
1. Reduces stress
The first reason why end-of-day trading is best is that eliminates much of the stress normally associated with intraday and shorter-term trading.
To succeed at intraday trading, you need to excel on many levels. You need to stay alert to news releases, manage risk, and you need to watch your trading screens continuously. In short, you need to stay disciplined when money is on the line and that can invoke tremendous amounts of stress for some people. In fact, most people fail at short-term trading for this reason.
End of day trading on the other hand is the exact opposite. You don’t need to watch the screen all day, you don’t need to fret over your profit and loss, and you don’t need to pay attention to the market noise on channels like CNBC and CNN.
As a result, you don’t get sucked into the stress zone. In fact, you can do pretty much what you like during the trading day. You know that you’ll be making most of your trading decisions at a set time or when the market is closed, free from the distractions and flashing quote screens.
2. Improves quality of life
Since end of day trading is considerably less stressful than other types of trading, it helps improve your quality of life. Instead of feeling stressed out and exhausted, you can feel relaxed and at ease.
With end-of-day trading you don’t need to be tied to a computer screen all day so you can go about doing other more rewarding activities. You can spend the day working on your strategies, reading trading books, or perfecting your chart-reading skills.
Or you can go and play golf. With end-of-day trading you have way more freedom and flexibility.
3. More cost efficient
The reason why intraday trading is so difficult is because of the costs involved. Every time you place a trade you have to pay a commission and spread. If the spread is large, say 1%, then you need to make at least 1% of profit just to break even.
On a short-term horizon that can be difficult, since some markets don’t even move 1% during the whole trading day.
End-of-day trading is no cheaper than intraday trading but because trades are held for longer, they have more chance of making a profit and covering the cost to trade. Therefore end-of-day trading is much more cost-efficient than short-term trading.
4. Gives bigger profits
As mentioned in the previous point, intraday trading cannot produce more profit than allowed by the range of the trading day and the level of margin used.
If a market moves just 10 pips during the whole day, it’s going to be difficult to make any significant profit, especially if the cost to trade is 2 or 3 pips.
End-of-day trading though, allows much longer trades and therefore much greater profit potential. A trade can be held long enough for a stock to move 100’s of percent, for example.
5. Captures overnight gains
Along the same lines, intraday trading is at a disadvantage since it cannot capture overnight returns.
In stocks (and indeed most markets) overnight returns can be significant. In fact, there have been studies to suggest that overnight returns are more pervasive and less risky than intraday. The table below comes from one such study and indicates the differences.
So if you’re not invested overnight then you’re missing out on lots of profit potential.
6. It’s easier
Another obvious reason for end-of-day trading is that it’s a lot easier to set up and implement. Many stock analysis programs are better designed for end-of-day trading. I use Amibroker and it’s also easier to obtain good quality end-of-day data.
With intraday trading there is a lot of noise and false signals. End-of-day trading signals are stronger and less likely to whipsaw.
7. End-of-day data is more accurate & more affordable
Unfortunately, historical intraday data is notoriously difficult to get hold of and back-test. Cheap intraday data is often full of holes and cannot be relied upon to replicate real trading. Good intraday data on the other hand is expensive and out of bounds for most of us.
Meanwhile, end-of-day data is both more accurate and more affordable. It’s easier to implement with most trading programs and makes strategy testing more straightforward. There are numerous pitfalls and difficulties when building an intraday system, but not so many when building an end-of-day system.
8. You can keep your day job
Lastly, intraday trading requires your full attention at all times. It’s a full-time, high pressure job that doesn’t let up.
End-of-day trading on the other hand need only take a few minutes or hours. In general, you get out what you put in.
This means you can keep your day job and still trade. In the evenings when the markets are closed or in the mornings before work are a good time to prepare your trades and strategies. Ultimately this means you can trade without financial worry since you know you will always have money coming from your day job.
Having to rely on an income from intraday trading is one of the main reasons why beginner traders blow up so having some financial security there is crucial to success.
End-of-day trading really is the best of both worlds.
End-of-day trading ideas
As a trader, I spend 90% of my time trading end-of-day strategies and throughout this blog you’ll find plenty of end-of-day trading systems and ideas.
– A short-term reversal strategy that beats the market
– Bollinger Bands trading strategies put to the test
– Intraday Trading With End Of Day Data
– How to Beat Wall Street: 20+ Trading Strategies For Stocks
Thanks for reading.