Everything You Need to Know About After Hours Trading

After hours trading

After Hours Trading

After hours trading isn’t for the faint of heart. If you’re just starting out as a stock trader, one of the first things you need to know is when to trade. Exchanges are the same as any other marketplace—they have opening and closing hours so traders know when to show up and when to leave.

Historically, the stock exchanges were open only at normal business hours in the U.S., unless you were a high-net-worth individual or an institutional investor. But, the digital era is the thing of the masses and this hungry age of electronic communications has pushed the exchanges to offer everyone the opportunity for trading both pre-market and after-hours.

There is a good reason that the market isn’t open 24/7: You only get true sentiment when everyone’s trading at the same time, more or less.

After hours trading, then, is the combination of after-hours and pre-market trading—everything that occurs in the short time period before the market opens and right after it closes.

The New York Stock Exchange (NYSE) opens at 9:30am EST, Monday-Friday, and closes at 4:00pm. But pre-market trading allows you to start as early as 4:00am, and go until 6:30pm.

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After Hours Trading, Extended Opportunities

For those of you who already know me and my work, you’ll know that I’m all about opportunities.

So why does after-hours trading offer us more opportunities?

Because buying stocks outside the regular trading hours gives us a chance to get in early on swings. It’s riskier—yes, but can be more rewarding, too.

If you are paying attention, for example, you could take advantage of any earnings winners like these before the rest of the trading world is awake. It could be a surprise you’ve come across in the early morning hours, or when everyone else is having dinner with the family, letting you make some quick cash on a short sell;** or it could be a surprise reaction to earnings. You could short a stock on relevant news in extended trade and then buy it back in the morning when it’s down below what you originally bought it for.

Trading after hours can offer us the advantage in these cases.

It also represents risk, if you’re not paying attention to the right things.

Take all the people who lost big on Chipolte in 2015. It’s hard to feel bad for them because they weren’t paying attention, but if you’re just starting out let this be a cautionary tale, because after hours trading doesn’t suffer fools.

Rumors that Chipolte stock had hit its bottom and would start rebounding right before an earnings call caused stocks to shoot up 10%, but only a minute later it fell 50 points. Riding this roller coaster is tricky, but the lesson is to not act on the first media report you read: If there’s an earnings call, you need to listen to what the executives are saying, because this swings stock prices almost as quickly as they get a sentence out.

Stocks that are flying high can fall just as big—and fast—when earnings are reported or major moves are made that are considered negative.

The Rules of After Hours Trading

The rules aren’t the same as they are for normal trading hours, and here is where you need to be careful when you’re hunting for a broker. If after hours trading is something you need in a broker, make sure you understand the rules, because every broker has different restrictions.

If you’re using the massively popular, commission-free (yes, it’s free) Robinhood trading app—the favorite among the Millennial generation—you won’t be able to take advantage of after hours trading unless you go for their gold package, which isn’t free….and beware that their executions usually suck (so much for their savings in commissions!)

But, many other brokers do offer after hours trading. You just have to make sure the rules and restrictions suit your goals.


Pros and Cons of After Hours Trading

There are clear benefits and clear risks in trading beyond normal hours. Check out this mini infographic from StockstoTrade, where it’s all laid out nicely for you:

What to Look for in Pre-Market Trading Hours

So, now that you know what after hours trading is and when it takes place, what data do you follow to make a decision pre-market or after hours?

If you’re trading big stocks, you’ll want to follow economic indicators. That would include GDP, retail sales, weekly jobless claims and U.S. employment reports (which comes out on the first Friday of every month at 8:30am EST). It gets tricky, though, for pre-market trading, because most of these economic report come out around 8:30am, so there’s not much time to get ahead the market.

But, if you’re chasing down smaller stocks with higher volatility, or penny stocks, pay attention to earning releases and news events.

Earnings reports come out before the market opens and after it closes. That’s why after hours trading can be a bit more exciting that the regular 9:30-4:00 business. When these earnings come out they can be a bit of a shock to the stock, with major price movements, while most others aren’t paying attention.

Earnings sessions can be a gold mine: These take place during the 1-2 weeks after the end of each quarter; so mid-January, April, July and October.

You’ll also want to keep up with the news and look for any catalysts that might have been reported the night before, while everyone was sleeping, or early in the morning before normal trading hours start. A catalyst (aside from earnings reports and calls) might be a media pump (but beware), a new product launch or any major change that could spark significant movement in the stock, one way or another.

NASDAQ offers a Pre-Market Indicator you might want to check out:

This is NASDAQ’s attempt to gauge market sentiment before the market opens. And today’s data availability means that this can offer us a much bigger snapshot, because it’s actually based on real  after hours trading data.

So, that should be enough to get you started and I’m hoping you’ll use this knowledge to test your talents as one of my Trading Challenge students.

Again, though, you may see me playing something that’s pre-market and then you try with your broker only to learn that you can’t do after hours trades. Then it’s time to find a new broker (I go over that here and I’ll explain even more in this new educational series shortly).

A lot of my alerts will be relevant for pre-market or after hours, because if I see something trading at or near my goal after normal trading hours, I’m definitely going to be there to take the profits.

Long story short, be VERY careful trading outside normal hours as there are different rules and much greater risks too…but if you’re prepared, you can catch some big moves before everyone else realizes what’s going on.

Leave a comment below and let me know if you like trading pre-market and after-hours!