Why End of Day Trading is Superior
There’s a fire hose of information directed at our faces everywhere we go.
Thanks to technology we can basically travel anywhere in the world and never miss a market tick.
Technology is great.
But just because we can consume information faster than ever and place trades wherever we go doesn’t mean we should.
Most traders, especially those still finding their footing, should be slowing down their trading, not speeding it up.
It may sound crazy, but all of our trading strategies over the years have been built around only making trading decisions at the end of the day.
Throughout this article, I’m going to share why end of trading is superior and why I’ve dedicated so much time building an entire trading process around it.
Let’s start from the beginning.
What do closing prices even mean?
When we use the term closing price we are referring to the final or last price a stock, ETF, or index trades at, come the end of the day.
Forget about the first six hours and twenty-nine minutes in the stock market and only pay attention to the final sixty seconds where we get the closing print.
Every time we mention closing prices we are referring to daily time-frame charts.
Now that we understand what closing prices are, let’s explore why end of day trading is superior.
You will spend less time in front of the screen
Spending less time in front of the screen is probably the most obvious yet most important benefit of end of day trading.
Not having to sit in front of the screens all day watching flashing green and red numbers tick by tick is a huge check mark in the pro column.
Very simply, trading end of day makes best use of your time. Think about the cumulative time savings over the course of just one year.
Take Trader A who sits in front of markets every single day from 9:30AM EST to 4:00PM. That’s 6.5 hours a day. Multiply that by the 252 trading days and that’s a total of 1,638 hours or 68 days spent staring at screens.
Trader B only trades market closes. Let’s assume he spends the first 30 minutes watching markets, and the final 30 minutes for a total of 1 hour per day. Multiply that by the 252 trading days and you have 252 hours or 11 days of screen time.
What could you do with an extra 1,386 hours per year?
End of day trading requires less decision making
Spending less time in front of the screens means you will have less data to interpret and therefore fewer decisions to make. Less decision making has two primary advantages.
First, mental capital and quality decision making is a finite resource for all you humans out there. By exposing yourself to markets all day you’re going to run the risk of burning out and be prone to making mistakes a lot quicker.
Second, having fewer decisions reduces the chances of tinkering with trades unnecessarily. You’ve likely heard the cliché: a trader is his own worst enemy. Well, that directly applies here.
By staring at markets the entire day, odds are greater you will over-manage, and mess around with your trades, instead of letting your original trade plan play itself out.
By trading closing prices, not only will you maximize and focus your mental energy, but you will also minimize your chances of harmfully over managing trades.
Avoid unnecessary volatility and false moves
Intraday action can be very noisy. Market makers, HFTs, news algorithms, all lurk in this time frame and play a dominant role in influencing the very short-term market flow.
Take for example, a stock that breaks out past your trigger buy level just 20 minutes into the market open. You see the move, you verify the setup, and you go ahead and place your order in the direction of the breakout.
Flash forward 5 hours later near the market close and the stock is making new lows on the day and the breakout has been completely rejected.
Your breakout that was perfectly valid and looking great in the morning is now no longer valid. Of course, acting on intraday movement creates just as much opportunity as it does risk, and we’ll discuss this in more detail below.
The bottom line, trading end of day prices smooths out the day to day noise and gives you fewer, cleaner data points to work with.
End of day strategies focus on more reliable signals
In the game of poker, the most desirable position at the table is the last person to act, this is called being on the button, otherwise known as the dealer.
Why? Because you get to see everyone else make their decisions and place their bets before you do. There’s a ton of value in that.
Trading the markets is no different.
By waiting until the market close, you get to see what has been deemed “fair value” after all of the news and information has been digested for the day.
Acting after everyone else has placed their bets, gives you more confidence that the price you are seeing reflects the true near term intentions of the market.
This is a great way to decrease the chances of buying into a false move.
A stock that closes above a prior resistance or trigger level is a much stronger signal than an intraday cross of it.
Added layer of discipline & peace of mind
Because this approach only requires placing orders once a day, the very earliest exit wouldn’t be until the next day. You won’t be day trading or making multiple decisions about a single stock throughout the day and because of this, you will have a more relaxed, and hopefully more controlled trading experience.
The great behind the scenes benefit of this approach is that it naturally instills a layer of discipline into your process.
There’s no jumping the gun as soon as a stock begins to move.
You’ll need to learn how to sit on your hands and watch the story unfold a little longer before getting involved.
The negatives: missing out on a big move intraday
This is the biggest con against strictly trading market closes.
For example, if we wanted to buy a breakout in TSLA if price trades above a key $200 level, and that begins to happen during the first 30 minutes, then we’re potentially out of luck.
By the time the close comes around, TSLA could be at 209, a much higher price than we wanted to get involved in, which generally means we have to pass on the trade or take smaller size.
If there are specific levels you want to get involved in with a stock, those prices, often times, would only be possible to get if you were taking entries intraday.
End of day trading means fewer signals to take
This can be a problem for two reasons.
First, if you’re a profitable trader with a solid strategy, then by definition you want to exploit that edge as much as possible. A positive expected value system will accumulate more total profit by taking more trades. End of day trading means lots of waiting and down time.
Second, some traders just won’t operate well unless they feel engaged. For good or for worse, they cannot wait until the market closes to start pushing buttons. If you are someone who needs to be involved with the intraday swings of the market, then end of day trading probably won’t be a good fit for you.
Whether it’s for psychological reasons, or your trading bottom line, having fewer signals can be a problem.
Why end of day trading is superior
Weighing the pros and cons
No one strategy or methodology is right for all traders.
There are pros, cons, and tradeoffs with every approach, and it’s up to you to figure out what makes sense and aligns with what you value most as a trader.
For me, end of day trading represents the most bang for my market screen-time buck, while also instilling a natural element of discipline and peace of mind.
It’s this balance, that keeps me emotionally at ease, and confident in my decision-making process, each and every day.
For more on this topic, including how to actually go about implementing an end of day trading strategy, check out this related article: How to Trade Stocks Using Daily Closing Prices.
Thanks for reading, and good luck out there!
Enjoy what you read? Share it below and be sure to tag @thetraderisk.