After Hours Trading - Is it right for you?

Trading stocks online in after hours trading can be very exciting, profitable, and risky all at the same time. Although without knowing a little of what goes on and how it works, you could easily lose a lot of money.

In this section I will go over what I have learned myself to try and give you an advantage and some knowledge to help you decide whether or not this is for you.

First of all, let's understand together that the regular trading hours for the U.S. stock market are from 9:30 a.m. until 4:00 p.m. eastern standard time.

Most online brokerage accounts will let you also trade in pre-market and after hours trading (sometimes called extended hours trading).


Since we are going over "after hours trading" in this section, you should know that this is from 4:00 p.m. up until 8:00 p.m. eastern standard time. Most free stock charting services do not have after hours trading capabilities so you will need to use your online brokerage account to watch the price movements.

Quite often you will see large moves in individual stock prices in after hours trading based on news releases that come out once the regular market is closed. Some examples of news releases that would move a stock price are: earnings guidance; earnings results; management changes; new products; cancellation of products; lawsuits; government actions for or against a company such as FDA approval of drugs and many other things.

To be able to take advantage of the price moves that occur during these hours you must have a reliable live news source so you can catch the move at the beginning. In the example of an earnings announcement, you must know ahead of time when that is and should have different scenarios worked out ahead of the news release, based on different results. This can help you by already having a plan ahead of time without having to make a quick decision that was not thought out.

after hours trading image1

Take a look at the chart above. The chart is of a financial sector ETF and you can see that at 1:00 p.m. during the regular trading hours there was some type of news that brought in buyers. It went from about $17.25 to $19.25, sold off a little with some profit taking, and then went higher with a little more profit taking into the close at 4p.m.

In after hours trading it did not start selling off so you can assume that the news earlier in the day may have some follow through with buyers. You could have gotten in during after hours trading around $19.75 with a stop loss around $19 or $19.50 and rode this one up to close to $21.00 before the end of the trading session. This would have been a gain of +5%.

If you had decided to hold the position overnight (I personally would take the 5% gain and close out my position) you could have had the chance to sell closer to $23 or $24 the next morning.

I just mentioned that I would have taken the 5% and closed my position. You might ask why? To me, if you are trading in after hours to catch quick moves then that is what you should do. Holding overnight and hoping for more gains seems a bit greedy and is not part of my plan to begin with.

If you were to use a small position size and look for entry points to hold for longer periods of time, then that would be fine. But not if you are trying to catch the quick gains as I am discussing. After all, in this case you could have had a good sleep that night and got back in the stock around $21 the next morning with no problems.

Just to reinforce my position on this, let's now take a look below at what happened to this stock/ETF price in the following weeks after this:

after hours trading image2

You can see that the price never went above the $24.25 shown in the first chart. In the weeks that followed, it went all the way down to below $9.00 and is currently just below $12.00... three months later.

Now this is not always what happens, but it sure can happen. If you decide to participate in after hours trading, being aware of this and having a good exit plan ahead of time will help to keep you out of trouble if and when the time comes.

If you are a news junkie (like myself), you can use a live reliable news source to try and catch moves with different stocks that you already are a bit familiar with.

The major concern with after hours trading is that the volume, and therefore liquidity is almost always much lighter than during normal market hours. The problem with this is that if you decide to buy shares of a stock during a low volume situation, the professional traders will be able to see that you have entered at a certain price, and they can possibly start selling, or shorting a stock to move its price the other way against you.

They would do this to try and cause you to panic, making you think you were wrong, and cause you to sell at a loss. Once you sell, the professionals then start buying and drive the price right back up to where it was or higher. Knowing this can happen will allow you to plan your trade properly ahead of time with a good exit plan no matter what the price does.

During a low volume session, this can be done very easily and occurs very often. Keep this in mind and you can avoid having to take a loss because of price manipulation.

I have entered into many trades in after hours trading trying to catch a quick move only to watch the price go sideways or down for hours after I got in. It is not a good feeling.

There are good things about trading during extended hours as well. For one, it is possible to catch large quick moves in stock prices without having to trade for hours during the day. There are often moves of 1-20% in very short time frames after hours. The key lies with knowing what could happen and having a plan in place ahead of time in case you have to get out of your trade quickly.




Return From "After Hours Trading" To "Stock Trading Strategies"


Elliott Wave Videos

Learn to trade in the direction of the forecasted trend with this free video course. Click here to start watching: Free Elliott Wave Video Lessons

Free Newsletter Updates

Trading Resources

Stock Trading Software
Stock Trading Software
Stock Trend AnalysisStock Trend Analysis