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.
Posted in Article, Trading Education, Trading Strategy, Trading Success
Tagged with Discretionary Trading, End of Day Trading, Entries and Exits, Swing Trading, Technical Analysis, Technical Indicators, Trading for Beginners
I guess I cannot really agree that trading only at the last few minutes of the day is a good idea. Sure, it can save your butt, if you get a big intraday reversal. But if you are a swing trader looking to stay in positions at least a few days, you can look for your setups at night, and put your orders in during the first 1/2 hour, and then if you were on the right side of the trade, you have a much better entry. If you were wrong, either you never entered the trade, or your trading rules should take you out.
I think the last 1/2 hour is certainly important and there is a lot of big money trading then. But to trade only the last 1/2 hour means that you sort of ignore all the overnight action, which is ignoring a lot.
I would suggest that you modify your article to talk about trading the first 1/2 hour, and the last 1/2 hour, and doing analysis at night.
But that’s just me.
Hey Craig, good to hear from you, thanks for commenting.
I probably should have had included some context around end of day strategies, but because they could vary so much I wanted to focus only on the high level PROs and CONs.
But to add some context, when I refer to end of day trading, it still assumes the trader is doing all of their usual overnight homework.
No action is being ignored or missed, it’s simply the execution side of the strategy which is restricted to the first or last 30 minutes of the day. The entire day’s action up until the closing print is in fact “the signal”.
It’s not for everyone, but for reasons discussed above, has it’s PROs.
THANK YOU! Craig–Analyzing at night, making the careful decision as to which stocks to get into, trading the first 30 minutes and checking out the last hour of trading ….is EXACTLY what I’ve been doing for the last month! I enjoy it; I’ve made a little money with it (but I admit I’m a newbie learning FAST!) and working on getting better and scaling up.
Then I read this article and thought: maybe I can tweak my current strategy to do better. Maybe I’m not getting the point. I can see some merit in only waiting until the end of the day to see what everyone else has done. But I don’t want to just see what everyone else has done. That’s not making me any money.
It looks like you listed all the things we dread that we’re doing wrong or going to miss out on by trading early morning volatility. But I’d really like to see some history on your picks, Evan. That would definitely convince me more.
By all means, if your current process is working for you then keep it up! Trading the first 30 minutes and then checking in on the positions at the end of the day sounds completely reasonable to me.
The essence of this article is really to show a method of trading that doesn’t require being glued to the screens staring at every tick throughout the day.
I do have every trade we have ever taken posted with exact entry, exit, etc. on this page: https://www.thetraderisk.com/trading-performance/ if you are interested in looking over some examples.
Keep up the good work!
Awesome cause this is what I do. The pattern is formed and easy to read by eod.
I understand that you initiate new trades at the end of the day, but do you sell existing positions only at the end of day, as well?
Hi Taylor, great question.
Our entry signals are generated on closing prices but we’ll happily scale profits or exit positions intraday if a trade hits a profit target or trips over our stop loss.
Great article. Are you purchasing your shares at the end of day, or setting up a stop buy order to trigger the next day if it reaches a certain price point?
For example, its May 1, 2017 and stock ABC is trading at $25.00 with 5 minutes left to closing for the day. All your criteria has been met and you think the stock is going to break out. So at 4:25pm EST May 1, are you entering the trade and purchasing the stock at $25.00? Or do you set a stop buy order for say $25.05 to trigger the next day?
The thought is that if the stock gaps down at the opening of May 2, then your trade is not executed and you aren’t in a possible losing position. However, if the next day the stock continues to go above $25.00 and triggers the $25.05 stop buy order, then you pay a few cents more to get in the trade, but now its more likely the break out will continue.
My mistake, I meant to say “So at 3:55pm EST May 1..” not “4:25pm EST…”
Hi Nick, thanks for commenting and glad you enjoyed the article.
It’s a good question, the buy stop method above the “signal” day highs is a technique I have seen used by a handful of traders for reasons you outlined above.
I personally do not use buy stops, I do in fact enter my orders during the last 30 minutes of the trading day.
I remember doing some light backtesting back in the day (3 or 4 years ago) between the two versions, admittedly not the most comprehensive testing, but I discovered the return profile over the long run wasn’t all that different, and I opted for the “simpler” execute at the end of day version.
The complexity or drawbacks for buy stops are:
1. figuring out how much more over the highs is sufficient confirmation.
2. running the risks of missing out or paying up in the strongest gap and go scenarios
3 .risks of paying up on a gap up that ultimately fails back into the prior signal bars range.
So I do agree, you will potentially save yourself from getting into situations where no follow through is ever seen, however, there are some tradeoffs that in the long run, from my experience, seem to even out.
Given this, I think both versions of execution are perfectly reasonable and simply come down to the individual trader’s preferences.
Very interested in seeing any backtests or research that show one method over the other, so if you come across any, please do send it my way.
Thank you for the quick and thorough reply. As an additional follow up, if a trade is placed at the end of day, is there a strategy to mitigate the risk of the stock gapping down below our stop loss the next day? Ex. May 1 buy in at $25.00, stop loss set for $24.00. May 2 stock gaps down to $23.50 so our stop loss is triggered we are out $1.50/share instead of $1.00.
Referring only to holding overnight from the initial buy, rather than just buying next day, is this a calculated risk (i.e. your stop loss is spaced far enough to avoid “normal” gap price movement) and is rare enough that if it happens, we suck it up as being part of the game? Would you avoid placing the May 1 trade during specific scenarios, such as if the quarterly earnings are being announced the next day or some other circumstance?
I really enjoy your site as your style seems suitable to the trading style I am contemplating to start with. I’ll likely send you a follow up email in the near future with some general questions I’m accumulating as I evaluate the premium membership. Thanks.
You nailed it, that is one of the biggest drawbacks or “cons” of swing trading (holding concentrated positions overnight).
It all comes down to position sizing and rather than go into depth here, I’ll direct you to the following post where I covered this exact question in detail: https://www.thetraderisk.com/how-to-position-size-when-swing-trading/
After that check out: https://www.thetraderisk.com/position-size-calculator/
To answer the second part of your question, I personally will never enter a trade if earnings are within the next week or so. I rather avoid that whole time period (even the week leading up) and certainly no holding into reports for me.
Nice to hear on the membership, shoot me an e-mail with any questions, and check out the “learn to trade” section above to get a better feel for our thought process and whether our style is a good fit.
I would prefer to only trade in the last hour. Sometimes, I stake out a chart, buy when momentum occurs, then encounter a reversal mid to late morning. For this reason, I have stopped trading in the first half hour altogether and begin looking for momentum around 9:00 Central time. But even then, there is risk. In Power Hour, there is usually a more committed pattern or bullishness or bearishness.
Nice job adapting so far John. Keep tracking what trades are working, and at what times, and continue narrowing down your “ideal setup”. Sounds like you are on the right path.
The idea is interesting, especially since all funds and such place trades at end of day, but there are massive spikes to be found during the day, like yesterday that could have been capitalized on.
Perhaps adding trailing stops would help capitalize on this?
And how does “End of Day” trading work for crypto. 🙂
I kid, nice to hear from you Brent, hope all is well.
Yea, you’re spot on, there’s plenty of intraday movement that will be missed adopting a strategy like this. Some of it for good and some of it is opportunity lost.
Trailing stops would certainly apply here, I use them myself even though I consider myself an “end of day” trader. Entries always happen at the close for me, but exits can occur throughout the session as risk management takes priority.
Crypto is certainly a different animal altogether in more ways than one. Maybe that’s why I don’t do a whole of “trading” there, mostly just bunkered down with core holdings in safe storage. 😉
I am impressed by your article. I was doing the ‘End of Day’ trading for quite sometime with out giving / knowing a name for the process and I was very happy with it .I picked it up from Toni Turner’s book. Some where in the middle of the book , it was mentioned that the author used to follow it. From that day I started following/ using it .
Still , since I am only a novice, I had lot of things to be clarified. Your article clarified many of my misgivings.
I am going to take it up actively for my trading in Indian Nifty and come back to you if I need any help.
You have done a great job in writing this article.
Thanks a lot
Thanks for leaving a comment and sharing some of your experiences. I’m glad you stumbled upon this article and found it helpful. Good luck with everything and I’m happy to try and assist answering any questions you have.
I’m super-new to the game but I think your EOD approach to trading is a great approach to cut down on noise and distraction. And, as you said…the entire day’s action up until the closing print is in fact “the signal”.
I’m doing a trading course with another online source and they emphasize that for swing trading, monthly and weekly charts are where you should be starting your search for good trades with, of course, confirmation on the daily chart.
People above comment on about lost opportunities during the day. But by watching intra-day movements and then acting on them, aren’t they, in effect, day trading? That is something I really need to avoid. I have a full time job and a family so keeping myself disciplined about watching the market is paramount for me – and is something that I think you are, in effect, advocating in your approach. Your thoughts?
Thanks for writing and good luck as you dive into the world of trading. Recognizing the importance of discipline is a great first step that you’ve already seemed to take. In terms of people who act on intraday movement, they walk a fine line, but technically day trading only categorizes people who are 100% cash come the end of the day.
So if a trader is buying stocks during the day with the intention of selling the position by the close, they are day trading. If on the other hand they are buying during the day with the intention of holding the position for days or weeks then they are acting as swing or position trader.
Hope that makes sense, keep up the good work!
Great article. Learned a lot there. I’m currently new to trading and since I have a full time job I’m trying to learn to trade EOD.
Quick question. 🙂 Assuming you bought EOD, how do you usually set your stop loss in order to avoid further losses incase the prices dive deep say during the day when you’re not in front of your chart?
Excellent, glad the article helped!
For stop losses, I always submit them to my broker as soon as I enter a position and I let the system handle everything so I don’t need to stare at charts. You can do this by entering a GTC (good ’til canceled) stop loss order. That simply means your protective stop will remain in the system for as long as the order remains active or until you manually cancel it.
This will allow you to walk away and let the order keep you protected. Hope that helps.
Are stop losses for swing/positional trading valid only till end of day or does it remain throughout till it is manually cancelled for all brokers? I heard that the stop loss placed for a swing/positional trade is only valid for the day and then it gets automatically cancelled at the end of the day. Next day when the market opens, swing/positional trades have to place a new stop for every holding stock which sounds very tedious.
You as the trader get to choose your order types. By default, you are correct, most brokers will treat your buy/sell/stop orders as “DAY” orders, which means they expire if not filled at the close of the day. But you don’t have to choose this type of order. I always use GTC (Good ‘Til Canceled) orders on my stop losses so they will stay in the system day after day until they get filled or until I manually cancel the order. Check out the documentation on order types for your specific broker and you should see how to make that change on your platform.