It almost goes without saying that Day Trading in premarket and aftermarket is something you should avoid as volume is low which then means you then have a much higher risk of getting stopped out due to market noise. You will also experience a much higher amount of fake signals. Another problem with trading the premarket or aftermarket is that the buyers and sellers are mostly made up of retail investors making it more risky as they can leave in a heartbeat drying up the volume to almost zero.
Day Trading Around Opening and Closing Time Is Dangerous
Many retail investors such as Doctors and Lawyers do not have the time to monitor the market when it opens so they put in their buy and sell orders before the market opens. This results in a lot of volatility and whipsaw around the opening.
Another reoccurring pattern is that many retail investors are excited about buying and selling when the market opens. This is because they have read about a stock in the newspaper or online the prior evening and then think they can make some easy money by buying first thing when the market opens.
Due to the big participation of retail investors in the first 15 minutes it is wise to avoid Day Trading during the opening. It is also well known that many big institutions wait the opening out before entering their trades. Because of this we recommend not to get too excited at the opening and wait for market direction.
Other Times to Avoid Day Trading
Volume dries up mid day as traders in the big institutions leave for their lunch break. As volume dries up, the market you are trading is more likely to give you fake signals. Many experienced traders habitually leave their trading computer so they do not get tempted to enter a trade during this quiet moment.
Something a lot of day traders do not realize is that the institutions adjust their holdings around closing time. Needless to say that this adjustment increases volatility and creates noise in the market. You will often see the price move up and down without making any sense. Because of this adjustment, price will act more randomly thereby making it very difficult and almost impossible to consistently make profit during the closing time. So we recommend avoid trading around end of day.
In our next post we will be talking about the benefits in Day Trading. Until then good luck with your trading.
Something a lot of day traders do not realize is that the institutions adjust their holdings around closing time. Needless to say that this adjustment increases volatility and creates noise in the market. You will often see the price move up and down without making any sense. Because of this adjustment, price will act more randomly thereby making it very difficult and almost impossible to consistently make profit during the closing time. So we recommend avoid trading around end of day.
In our next post we will be talking about the benefits in Day Trading. Until then good luck with your trading.