End of Day Trading Frequently Asked Questions
Ever ask someone that trades what kind of trader they are? If so, you’ll probably hear a response like this…
I’m a day trader.
I’m a trend follower.
I’m a quant.
I trade ETFs.
I’m a mean reversion trader.
I’m a swing trader.
….
What you’ll quickly realize is there are lots of ways to describe a traders style and you’ll notice each response is describing a different aspect of their trading.
Trader Type | Description Of |
|---|---|
| Day Trader | Time-frame |
| Trend Follower | Strategy |
| Quant | Investing Philosophy |
| ETF Trader | Stock Selection |
| Mean Reversion Trader | Strategy |
| Swing Trader | Time-frame |
One of my preferred ways to differentiate trading styles is based on the time frame the trader executes on. The idea is to split intraday traders from everyone else, otherwise labeled, end of day traders.
We’re big fans of end of day trading at the Trade Risk — it’s our focus. We don’t believe most people should be trying to day trade or stay glued to every market tick throughout the day. We believe in maximizing risk-adjusted returns while minimizing the time involved to execute that strategy.
We’ve written about end of day trading a handful of times on the blog and, because it often leads to the most frequently asked questions we receive, we wanted to summarize some of those Q&As here.
What is end of day trading?
End of day trading is an approach to trading the stock market that uses the final prices of the regular trading hours (RTH) session for its buy and sell decisions. End of day traders ignore the intraday noise and focus on the last price of the day come the end of the session.
Taking this definition a step further, we can extend things to a weekly or even monthly time frame and use end of week and end of month data sets for the sole decision-making process.
Why end of day trading?
There are lots of reasons why someone may want to adopt an end of day trading approach, which we covered in the post Why End of Day Trading is Superior. We’ll bullet the high-level sections here:
- Spend less time in front of the screen
- Less decision making (aka fewer chances to mess things up)
- Avoid unnecessary volatility and false moves
- Focus on more reliable signals
- Added layer of peace of mind and discipline
This all sounds pretty great, but of course, you can’t have all these things without some drawbacks. Check out that article to see what you may have to sacrifice on.
Who is end of day swing trading for?
End of day swing trading is for anyone who wants to enjoy more peace of mind by cutting out the back and forth drama of intraday price action. It’s especially ideal for anyone who works a full-time job, takes care of kids, travels often, or simply has other full-time daily commitments.
It’s not just for people short on time. It’s an equally viable option for professional traders that may run multiple strategies or for someone who wants to actively manage risk in markets but doesn’t care for babysitting markets all day.
Our belief is that it’s the perfect time horizon for retail traders. Nimble and active in the market without competing against the likes of HFTs and the army of professional wall street quants.
Does that mean all of my orders should be submitted at the end of day?
No, that doesn’t have to be the case.
There are a few different ways you could implement entry execution with an end of day trading strategy and, like with most things in trading, there are trade-offs.
Below is a table taken from our post on How to Trade Stocks Using Daily Closing Prices, which summarizes the different choices.
Execution Strategy | Pros | Cons |
|---|---|---|
Before close at end of day | Earliest entry out of all the options. Gets you in the strongest stocks fast and before potential follow through the next day. | Risk of getting into stocks without confirmation and it also requires you to run scans or watch markets closely for at least the final 30 minutes of the day for quick order entries before the market close. |
On next morning open | Easiest to run scans and do homework entirely after market hours. Virtually no intraday screen watching required. | Buying the next open blindly leaves you at risk of paying up for a stock that gaps up the next morning open beyond your intended (ideal) entry price. |
Next open on follow through or specific trigger | Gives a great blend of confirmation, avoids fakeout moves and also flexible in that no intraday screen watching required. | Cons are similar to on the next open approach. You can get caught purchasing at a higher price relative to your desired levels or outright miss the trade altogether if it opens, holds, and moves beyond your trigger action area. |
Okay I’m convinced–how do I start trading end of day?
Remember, end of day trading only refers to the time frame the trader executes on. You’re still going to need to develop a trading strategy that actually signals when you should buy, sell, take profits, position size, etc.
The key takeaway is that when you are developing that strategy you’re going to want to use a daily, weekly, or monthly stock market data set to test and build on.
What types of strategies work with end of day trading?
All of the most common strategies have the potential to fit into an end of day approach. Trend following, price action trading, momentum trading, breakout trading, mean reversion, the list goes on and on.
All of these strategies would simply need to be calibrated to use closing prices as their data points to make buy and sell decisions.
To be clear, it’s easy to say all of the above strategies can work, but once again, you actually need to build or find a profitable strategy that makes sense and makes money.
What about stop losses– should they be end of day only?
Just like our discussion on entries, there is no single right or wrong fit for everyone, there are trade-offs you will need to consider.
The two options you have are take the exit in real time when price gets to your stop loss or wait until the end of the day and only exit if the stock is confirmed closing below your stop loss level.
I’ve spent a good amount of time testing and running live strategies using both methods and my conclusions are the following.
The shorter your anticipated strategy hold time, the more likely you will want to honor stops intraday. The bigger your targets and wider the stops, the more sense it makes honoring stop losses using closing prices.
The reason really comes down to position sizing.
If you’re looking to capture short multi-day swing (two to four days), chances are your position sizes will be on the large side, and your targets will probably be 10% or under in terms of distance.
Here’s the situation you might run into:
For more discussion and examples visit our post, How to Trade Stocks Using Daily Closing Prices.
End of Day Trading Frequently Asked Questions
That wraps up some of the most common questions we receive about end of day trading, but we’ll be sure to update this post as more come in. If you have a question yourself please leave a comment below and we’ll do our best to get you an answer as soon as possible.
Thanks for reading and good luck out there.
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Posted in Article, Trading 101, Trading Education
Tagged with End of Day Trading, Swing Trading, Technical Analysis
Evan, thank you for your excellent educational articles. Regarding the “blended” strategy of setting a “buy on open” when a particular trigger (buy stop) is hit, how would you be to also place a buy limit to protect yourself from a whipsaw loss caused by a stock significantly gapping up on open?
Hey Todd,
It’s my pleasure, I’m glad the articles are helpful. I think what you would be looking for in that case would be buy-stop-limit orders. This gives you the best of both worlds and protects you from paying up far over your stop price. We wrote an article on them here: https://www.thetraderisk.com/buy-stop-limit-orders-for-swing-traders/ have a read and let me know if you have questions.