After hours trading: what does it means, and more importantly, how can you use it to your advantage?
We’ll have a look at everything you need to know about after hours trading, including the basics, strategies, tools and resources, and tips for minimizing risk. Let’s get started.
The meaning of “after hours trading”
After hours trading means buying and selling stocks outside of the regular trading hours. Typically, the stock market operates from 9:30 am to 4:00 pm Eastern Time (ET). Any trading conducted outside of these hours, be it pre-market or after-market, is considered after hours trading.
This extended trading time allows investors to act on news or events that may affect stock prices after the regular market has closed.
Two principles of after hours trading
- Lower Liquidity
Liquidity refers to the ease with which stocks can be bought or sold.
During the after hours trading, there tends to be less liquidity, which means there may be fewer buyers and sellers. This can lead to wider bid-ask spreads, making it more difficult to execute trades at favorable prices.
- Higher Volatility
Because of the lower liquidity in after hours trading, stock prices can experience greater volatility.
Any significant news or event that occurs after regular trading hours can cause sharp price movements, which can be both an advantage and a disadvantage for traders.
Tools, strategies and tips to succeed in after hours trading
Financial news and charts should be your main focus while following a trading strategy in after hours trading.
Actually, you should always follow financial news to stay informed about the latest events that might affect the markets.
Also, using charting tools, such as candlestick charts, and technical analysis indicators help you identify patterns and potential trading opportunities in the after hours market.
There’s one tool that can help you doing that: Edge-to-trade.
In fact, Edge-to-trade is an all-in-one workspace designed to help traders automate trading decisions and optimise their performance. Stocks statistics, real-time news, historical data… Everything in one place.
Keeping yourself up-to-date with the latest news is the key.
What are the main strategies or tips to operate in after hours trading?
Firstly, start small and diversify your portfolio. When you’re new to after hours trading, start with small position sizes. This will help you minimize your exposure and better manage your risk. Other than that, having a diverse portfolio can help you manage the potential risks associated with after hours trading.
Then, be sure to use limit orders instead of market orders when trading after hours. This way, you can specify the maximum price you’re willing to buy at, or the minimum price you’re willing to sell at, helping you avoid potentially unfavorable executions.
Do you want to learn more about after hours trading?
Disclaimer: these articles are for educational purposes only. Market analysis, prices, news, trade ideas, or any other information within this site or the chatroom is not investment advice.