After-hours trading: A beginner’s guide


Have you ever wondered what happens to the market after the closing bell?

Well, you are not alone. After-hours trading, also known as extended-hours trading, offers traders the opportunity to buy and sell assets outside of regular market hours.

In this beginner’s guide, we’ll delve into the world of after-hours trading, exploring its mechanics, advantages, disadvantages, risks, and essential tips for traders.

What is after-hours trading

Imagine this scenario: you are sitting at your computer after a long day of work, and suddenly you hear about a groundbreaking development in a particular asset you’ve been eyeing. With traditional trading hours closed, you might think you’ve missed your chance to act. However, that’s where after-hours trading comes into play.

After-hours trading refers to the buying and selling of assets outside of the standard trading hours of the major exchanges. These extended trading hours typically occur before the market opens in the morning and after it closes in the evening.

While after-hours trading was once limited to institutional traders, advancements in technology have made it accessible to retail traders as well.

Market hours vs. after hours

During regular market hours, the majority of trading takes place. After-hours trading, on the other hand, occurs before the market opens (pre-market) and after it closes (post-market), extending the window of opportunity for traders.

For European traders, after-hours trading usually occurs from 9:00 AM to 5:30 PM Central European Time (CET), extending until around 8:00 PM CET after the regular market closes. Some platforms offer trading until 10:00 PM CET.

Participants in after-hours trading

After-hours trading isn’t just for professionals. Both institutional traders, such as hedge funds and mutual funds, and retail traders like individual investors have the opportunity to participate. This increased accessibility has levelled the playing field, allowing traders to capitalise on market movements outside of regular hours.

Assets for after-hours trading

While after-hours trading encompasses various asset classes, certain assets are more actively traded during extended hours. Stocks of companies reporting earnings after the market closes, futures contracts tied to commodities, and certain foreign exchange pairs can experience heightened activity during after-hours sessions. However, it’s essential to research and understand the liquidity and volatility of specific assets before trading them after hours.

Source: Investopedia

Special techniques for after-hours trading

After-hours trading offers unique opportunities for traders, but it requires specialised techniques to navigate effectively. Here are some strategies tailored for non-professional traders:

1. News-based trading

Stay updated on news and events outside of regular market hours, especially earnings announcements and major corporate developments. React quickly to market-moving news to capitalise on price movements.

2. Earnings plays

During earnings season, focus on stocks releasing earnings reports after hours. Anticipate surprises or discrepancies between actual results and expectations to make informed trading decisions.

3. Gap trading

Take advantage of price gaps between the closing price of one session and the opening price of the next. Enter positions at the open of after-hours trading and anticipate price retracements or continuations.

4. Overnight swings

Identify potential overnight swings by analysing pre-market activity and news catalysts. Enter positions before the close and hold overnight to profit from anticipated price movements.

5. Extended hours breakouts

Look for breakout opportunities outside of regular market hours. Enter positions when an asset’s price breaks significant support or resistance levels, and ride the momentum as the price continues to move.

6. Arbitrage opportunities

Exploit price differences between different markets or platforms to make risk-free trades. Buy and sell the same asset simultaneously in different markets to lock in profits from pricing discrepancies.

7. Volatility squeeze plays

Identify assets with low volatility and anticipate a potential breakout. Use technical indicators such as Bollinger Bands or Keltner Channels to pinpoint periods of low volatility and enter positions before expected price movements.

Pre-market analysis

Before diving into after-hours trading, it’s essential to conduct pre-market analysis to prepare yourself for potential trading opportunities. Here’s a simplified guide for novice traders:

Step 1. Stay updated on market news

Keep an eye on news and events that could affect asset prices during after-hours trading. This includes earnings reports, economic data releases, and major news headlines. Be aware of any significant updates or surprises that could impact market sentiment.

Step 2. Watch pre-market activity

Monitor pre-market trading to gauge investor sentiment and anticipate potential price movements. Look for significant price changes and trading volume, as they can provide clues about market direction. Pay attention to how prices react around key levels of support and resistance.

Step 3. Use simple technical indicators

Consider using basic technical indicators like moving averages or support/resistance levels to help inform your trading decisions. These indicators can provide insights into market trends and momentum. Keep your analysis straightforward and easy to understand.

4. Plan your strategy

Based on your analysis, develop a clear trading strategy outlining your entry and exit points, as well as your risk management approach. Stick to your plan and avoid making impulsive decisions based on emotions or short-term fluctuations. Stay disciplined and patient.

Risks and considerations

  • Volatility: after-hours trading is known for its volatility due to reduced liquidity and participation, amplifying price fluctuations. Not-experienced traders should be cautious and ready for sudden price movements.
  • Liquidity concerns: Thin trading volumes in after-hours sessions can hinder trade execution at desired prices. Always consider liquidity when trading outside regular market hours to avoid difficulties in executing trades.
  • Price discrepancies: Asset prices often vary between regular market hours and after-hours trading. This discrepancy can offer both opportunities and challenges for traders to navigate.
  • Impact of news and events: News and events outside regular market hours can significantly influence after-hours trading. Traders must stay informed and be prepared to react swiftly to market-moving developments.

In conclusion, after-hours trading offers traders an opportunity to capitalise on market opportunities outside of regular trading hours. While it can be advantageous, it also comes with increased risks and challenges. Remember, education and preparation are key to success in after-hours trading. Happy trading!