After hours trading was once the province of large investors. Now, with electronic communications networks, after hours trading is open to all. So, the question is… what good is trading after hours and what are the risks? You have all day to trade, five days a week. Who needs to stay up all night?
Why After Hours Trading?
This part is obvious. You trade to make money. The world goes on when any individual market is closed. Markets are open throughout the world for twenty four hours a day. Opportunistic trading outside of normal trading hours can allow large profits for those watching the news and taking advantage of price fluctuations using after hours trading.
Negatives of After Hours Trading
Because there is less volume in after hours trading it can sometimes be difficult to get out of a position. Although opportunistic trading can make you a lot of money after hours you can also get stuck in a position while war erupts in the Middle East or terrorists blow up the next train in London.
Low Trading Volume in After Hours Trading
You may find it frustrating trying get an order executed when there is little trading volume. You may need a lot of coffee while you wait for the market to come to your price.
Serious Competition in After Hours Trading
After hours trading used to be the sole province of big investors with lots of expertise and?lots of money, and composed of traders with lots of experience. Just because the average investor has come on board doesn’t mean that these folks have gone away. Here is where having, and studiously executing, an opportunistic trading plan keeps you out of trouble and makes you money.
Big Price Swings in After Hours Trading
Because fewer shares are being traded by fewer traders during after hours trading there can be big price swings. Again, here is where a strong opportunistic trading plan and experience come in. Go long or short correctly and you can do very well in after hours trading. Go long or short incorrectly and you will need to trade successfully during normal daytime hours for a month or so to make up your losses.
Positives of After Hours Trading
Above we talk about being stuck in a position that you cannot buy or sell your way out of because of low trading volume. However, promptly placing a sell order upon hearing bad news may allow you to watch your profits grow all night until you buy when the NYSE opens in the morning. In this case you can wait for the volume in the morning.
After hours trading can be considered to be more opportunistic than daytime trading. You do not need to place a single order if conditions are not right to make a profit. Remember the three major rules of trading which are discipline, discipline, and discipline. The other three are patience, patience, and patience.
Make sure that part of your trading plan allows you to sit it out if conditions, including trading volume, are not right.
Technical Aspects of After Hours Trading
Trading programs are statistical animals. Statistics work better in analysis when the numbers are large. Anyone interested in serious after hours trading would be well advised to investigate the parameters of their trading program. That is, how accurate are the programs buy and sell recommendations at low volume?
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