How to Trade the After-Market Movers

Learn the fundamentals of trading stocks after regular hours

Regular market activity ends at 4 PM EST. However, stocks are still bought and sold after the closing bell. Here are the pros & cons of after-market movers.

After normal market hours, volumes deflate, and fewer players engage in the exchange. This style of stock trading is associated with rapid moves, high stakes and high profits. Even with the most reliable trading broker, it is not possible to assess the full scope of the risk. Here is a basic guide to help you navigate the realm of after-market movers.

After Hours Trading Definition

As the term suggests, this kind of trading occurs after the official hours for activity on the US stock market. NASDAQ and the New York Stock Exchange (NYSE) are most active between 9:30 a.m. EST and 4 p.m. EST. This is because financial institutions, such as banks, are open. The prices quoted in the media (for opening and closing) also refer to 9:30 a.m. EST and 4 p.m. EST, respectively.

However, trading does not cease once the clock strikes 4 in the afternoon. In fact, smaller volumes still circulate outside the period. Here, trading is classified as either ‘pre-market’ or ‘after hours’ (also ‘aftermarket’).

NASDAQ securities are traded from 4 AM, while for NYSE the earliest is 7 AM. All trades executed before 9:30 AM EST qualify as pre-market. In the same vein, all trades closed after 4 PM EST (until 8 PM EST) fall into the aftermarket category.

The Origins of Aftermarket

Naturally, when the closing bell rings at 4 pm, trading does not cease immediately. Some traders are still getting out of their positions or opening new ones. This inertia explains the subsequent hours of trading activity. Therefore, movements are caused by the same factors. Participants buy and sell stocks based on the general sentiment. The only difference is the time frame.

Another crucial factor is media reports. Corporate news that concern earnings may be posted after the closing bell. However, they are powerful enough to sway prices significantly. Once the news is made public, institutions and retail traders will decide on their strategy.

Imagine yourself in this situation. The market has officially closed, but crucial news has just been broken. Most of your peers will not be able to react until the next day. Here, the sooner you act, the bigger the opportunities.

As a consequence, the market may experience dramatic changes when most of its participants are dormant. Stock prices may even skyrocket or nosedive depending on the nature of the news. The general volatility may also attract day traders willing to change their regular behaviour to rake in higher profits.

Which Stocks May be Traded?

Most often, these movers are stocks with immense daily volumes. The lower the volume — the lower the interest and probability of after-market activity. This also means the stocks of small lesser-known companies are likely to be excluded.

Therefore, not all shares will circulate after 4 PM EST. The activity concerns assets that have enough buyers and sellers willing to conclude transactions. Moreover, they both have to accept the price.

Where to Find the Movers

Here, you have several possible sources. First, pay attention to announcements concerning earnings release. Many corporations make these in advance. If this is scheduled for after 4 PM EST, you have a chance to capitalize on after-market moves. All earnings may be found on Yahoo! Finance.

Other sources of information include NASDAQ After Hours Most Active list. Check MarketWatch After Hours Screener as well. The trading software you use may also give access to relevant active listings. Contact your broker to see if this kind of data is accessible.

Pros and Cons of After Hours

Weaker competition is the biggest benefit of trading after normal hours. The fewer traders there are, the more favourable the prices. As soon as the marketplace gains more liquidity, the gains are less impressive.

On the other hand, fewer competitors means lower volumes. Besides, price movements are often erratic. Hence, it is easier to make a mistake that brings losses. The final drawback is that dramatic moves may be difficult to get in.

Tips for Trading

If you intend to harness after-market movers, here are a few suggestions. There are a few differences from common trading tricks. Two popular approaches are news-related and trend following.

Basic guidelines are identical to rules for normal hours. However, you should remember about the following distinctions and accommodate for them:

  • higher spreads,
  • smaller volume, and
  • bigger price shifts.

Here, stop loss tools are useless, and the stakes are high. To hedge the risk, stick to modest position sizes in comparison to what you would normally trade.

In conclusion, stocks of the largest companies remain in circulation after the closing bell. After-hours exchange brings higher profits or higher loss depending on your strategy. Therefore, the opportunities are impressive, but they require common sense and preparation.


Updated September 13, 2020

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