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Strategies

After Hours Trading

Before we plunge into explanations of what after hour trading is, it’s important to understand that open and close auctions are designed to minimize price manipulation. 
The exchange needs them to relieve the load on the trading system in the first minutes of trading and to determine the opening price of the main session. And for crypto investors, 24 hour stock market can become a great tool for profitable deals to implement a strategy after changes that took place in the world, country or company, when the main auctions were closed.

What is after hours trading?

What is after hours trading?
What is after hours trading?

It takes place when the market closes and an investor buys and sells assets outside of regular trading hours. Deals are performed through electronic communication networks matching potential buyers and sellers outside traditional stock exchanges. 

How do users generate profit with after market trading? Until the main trading session finishes, factors influencing the price movement may appear: news, reports, statements by company representatives, and so on. Trader’s task is to find the information that sets the tone for the market and predict how it can affect the price during a post market session.

Companies often publish financial statements before or after the close of major trading to mitigate their impact during the major session. By the time trading opens, the price may stabilize, and retail investors may change their strategy based on new data.

With the help of auctions, investors “win back” these changes in exchange-traded assets. However, trading outside of regular time has its risks and limitations, here are the main ones.

Challenges of postmarket trading

  • In contrast to the main session, liquidity can be low during the pre trading hours or post trading period, especially in the absence of news.
  • At the same time, the US has a reporting season four times a year. Most of the reports are published during the premarket and postmarket times, which is immediately reflected in the premarket chart.
  • High volatility.
  • Large funds are mainly involved in these trades. Their orders have wide spreads, which means that the deals of an ordinary investor can slip through, i.e. get a price worse than planned, or deals may not be executed due to insignificant volume.
  • For long-term investors, “catching quotes” during auctions is not a good idea. This process is more suitable for scalpers.

Not sure whether post market hours trading is suitable for you? Weigh all pros and cons:

ProsCons
A trader is not limited to the trading window – he can react to events that take place  after 4 p.m. or before 9:30 a.m. The information may come from news and job releases.No need to monitor the market 24/7 – it can be done during the trading window only.The possibility to get benefits from the market before anyone else.Order restrictions mean that the order should be taken by someone within a short period of time. If there is no buyer or seller, your deal risks to stay inexecuted.It introduces additional risks because of low liquidity and wide bid-ask spreads. 

How does it work?

When trading on the postmarket, traders pay attention to the passing volumes, since during this period the liquidity of securities becomes lower than during the main trading period. Traders use this time to set positions, which will subsequently be carried over to the next premarket time.

Postmarket is based on upcoming news events or company reports. If the trader plans his actions correctly, then at the opening of the next day’s trading session he gets a good profit at the very beginning. Also, on the postmarket, a trader can try to close his positions if he did not manage to do this during the main trading period.

Fiat traders watch NASDAQ, AAPL and NYSE premarket tools to purchase Apple or Tesla stocks. Cryptocurrency traders watch DeFi and crypto assets and the corresponding indicators.

Recommendations for after hours market trading

  • During the post trading period, large funds perform operations if there are events that may affect the movement of prices in the future.
  • In the American market, trading on the postmarket is better developed due to the longer duration. Other countries often use the Derivatives Market to execute a trading strategy before the main market opens.
  • If the investor has certain information that appeared during the closing of the main trading and can affect the price, it can be used to make transactions.

For example: a company has published a report containing some information that may provoke an increase / decrease in prices. You can open a position during after market trading hours at a favorable price and get a profit due to the gap at the opening of the main session, when more investors come to the market.

Example of after hours trading
Example of after hours trading

It should be kept in mind that after hours trading times are considered very risky. It is quite difficult for an ordinary investor to make money during auctions. Lack of information and lack of resources can be the main reasons for failure, as large funds are mainly involved in auctions. It also requires profound knowledge to predict future events.

How to find a perfect postmarket strategy?

Balance between buying and selling is the main strategy in the postmarket – it should form the basis for a trading plan. Postmarket trades can only be executed with limit orders. Such trading carries great risks, since the trades are actually performed during the post- or pre market trading hours of the exchange. 

Therefore, anyone, even the most experienced trader, needs to weigh the pros and cons before using this strategy. Perhaps the biggest risk of post market trading is high volatility at the opening of a trading session. This leads to a sharp change in the price in the order book and a possible loss. Be aware that the premarket price range and trend may change as soon as the market opens.

Beginners are not recommended overnight trading, it is better to first observe the movement of securities during the day. If you have decided to take up this approach, test it on free stock market simulators – it will help you polish your strategy. 

One of the best post- and premarket tips is to use the TradingView online program. It is convenient and multifunctional, and you can use it for free. If you want to download more information or get access to various patterns, as well as download the obtained data to your computer, you can choose the paid version of the program.

By the way, TradingView provides the whole category of indicators and analyses for after hours trading. It will guide newcomers through the process of trading. Yet, a limited amount of cryptocurrencies is covered.

Conclusion

Extended hours trading is a great approach for experienced traders who know the market well and can predict its movements well. It is risky and requires a lot of analysis, but the profits might be well worth it, especially when large stakes are made.

Please note that this strategy is widely used by whales – they always have advantage over smaller traders. That means newcomers need to be double-careful with every step made.

Amar Rupinder Gupta

Indian analyst in the field of trading in the forks and binary options markets. Writing about the successes and failures of banks, investment companies, and major traders. Stories about fraudulent schemes in investing and market news. Lessons in investing and portfolio management. Graduated from ICFAI University.

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