As a beginner in forex trading, one of the biggest challenges you have to face is how to keep abreast of market movements continually. This pushes those unable to find enough time to remain glued to the market round the clock into making half-baked and rushed trading decisions that prove costly in the long run.
However, contrary to general opinion, it is not compulsory to sit in front of the computer all day to trade the markets. If finding time to at least trade during the busy UK/US sessions is a challenge, end of day trading may be for you.
What is end of day trading?
End of day trading refers to a style where trading decisions are made after the New York Close. The analysis and trades are taken during the period between New York Close and London Open, which is the Asian Session. Some end of day traders need less than 15 minutes to look through the various pairs they watch and take trades.
With end of day trading, traders can see a bigger picture and market direction without having to deal with the minor movements that happen on intraday charts. It is also the perfect way to trade for individuals that cannot commit to quitting their day jobs and trading full time.
Most end of day traders use higher timeframe charts in their technical analysis such as the daily and weekly charts. The lowest you can go as an end of day trader is the four-hour chart. Intraday traders, on the other hand, look at charts with timeframes ranging from one minute to one hour at the maximum.
Why end of day trading is better than intraday trading
There are many reasons why end of day trading is better than intraday trading. We take a look at some of these below.
Ability to maintain the income stream from your day job
With end of day trading, you can easily fit your trading around your work schedule. You won’t have to quit your day job or risk getting sacked at work by combining trading and employment.
Your inability to sit and watch your trading charts all day should not prevent you from achieving trading success. Keeping your day job while trading can help your trading career.
Firstly, it will ensure you are not looking at the markets round the clock. This can help you avoid overtrading and knee-jerk decisions that happen in intraday trading, which push many beginners towards blowing out their trading accounts.
By keeping your day job, you will become a low-frequency trader, and most low-frequency traders have been proven to be more successful than high-frequency traders in the long run.
Secondly, having an income stream outside your trading places you under less mental stress than someone else that is entirely reliant on the income from their trading.
When you know you are not under pressure to make money, you will be able to make more properly thought-out decisions without chasing the market.
So instead of quitting your day job to have enough time to analyse the markets for hours, you can use it as a platform to build your trading career as we further discussed in this article.
Ability to see beyond the noise and clutter on intraday charts
The easiest thing in forex trading, if you have an excellent trading system, is to see if a signal has been generated or not. However, trading the noise and clutter on the intraday charts can make this easy part of forex trading the hardest.
When trading intraday charts, a trading system is exposed to countless whipsaws, thereby leading to the generation of many low quality or bad signals to counter the good signals generated.
Take a look at the image of the GBPJPY daily chart below. Note how a trader using a simple Moving Average Crossover Strategy would have taken only one buy trade over five months. Holding it till the end of the bullish trend and the start of a bearish trend as indicated by the red arrow would have brought in over 2,500 pips for the trader.
A trader taking signals off the 5 minutes chart using the same strategy above will be caught chasing several small moves all through the day, as shown below, by taking dozens of positions.
At the end of the trading day, he may be left with a small net profit or a significant loss. Throughout the same 5 month period, there is a high chance the intraday trader will not make up to half the 2,500+ pips netted above by the end of day trader on only one trade.
Many traders try to counter the noise on smaller timeframes by bringing in many “filters”. This ends up overcomplicating a trading strategy and causes them to miss out on many good moves. Before all the additional filters align to give a good signal, the opportunity may have gone.
Similarly, adding filters means making arbitrary changes to a trading system. A trading system is a holistic setup that has been proven to work in both backtests and forward tests. Throwing in an indicator because you feel it will help filter bad trades and that it looks good in backtests compromises the integrity of the trading system.
With end of day trading, your strategy has a better chance of success than when it is deployed on intraday charts. Most importantly, you won’t have to sit and wait for hours to get signals. In the GBPJPY daily chart above, it will only take one glance at the screen at the start of the Asian session to see if there has been a signal or not. When there is no signal, the trader ignores the market until the next trading day.
Effective use of your time
As touched briefly in the example above, signals picked off the daily chart by an end of day trader will be weightier than signals picked off intraday charts like the minute or hourly charts.
It means the trader can make more by spending very little time in front of the screen. Instead of sitting for 12 hours in front of the screen for a net profit of 40 pips at the end of a positive day, you can spend less than 30 minutes in front of the monitor daily and make triple that number by the end of the day.
Granted, end of day traders can hold positions for months, but in many cases, the total amount of profit will outweigh the returns of an average intraday trader over the same period.
How to trade end of day
Trading ending of day involves taking various simple steps. We take a look at these steps below.
Develop a trading strategy
A trading strategy is a carefully laid out plan for approaching the market. You need to know what you expect to see before buying or selling a pair. Your trading strategy can include looking for breakouts, watching for reversals at key support or resistance levels or simply following the trend. It could also be a mixture of these.
The key is to ensure you have a clear and concise strategy that is not open to subjectivity. The strategy should include pairs to trade, entry parameters, exit parameters, stop loss/take profit settings and position sizing parameters.
Position sizing is crucial as it determines what lot size should be used in any trade. You cannot practice proper money management if you don’t include position sizing in your trading strategy.
When you have a trading system in place, run a visual backtest with the rules on intraday charts. Go back at least 10 years. Do the same on the daily chart and then forward test the strategy for at least 3 months on a demo account.
Check for signals
When you are ready to go live with your trading strategy, apply it on the daily chart of your live account and start checking for signals. Since you are looking at the daily charts, trade signals may be generated less than 3 times on a pair over a year.
This is why you should be watching a basket of at least 12 to 20 instruments. You should only check signals during Asia Open which is typically between 10 pm, and 12 am GMT depending on Daylight Savings Changes across the world.
Take trades and manage them
When you find a position to take in line with your trading strategy, enter the trades. If you have a broker that widens the spreads during the first few hours of the Asian session, it may be best for you to wait until towards the close of Asian Session and the London Open before taking trades. When you enter the trades, the next step is to start managing them in line with your trading strategy.
If your system allows you to move trades to Break Even after going a certain amount of pips in profit, you can start checking for trades that have met that amount of pips and move them accordingly.
If you see a new opportunity but can’t take them due to money management rules in your strategy, it may be best to close out the most profitable trade to make room for the new one. Closing the old trade ensures you have enough in the bank to take care of any losses while avoiding missing out on potentially highly profitable trade.
When doing this, however, it is vital to ensure you are sticking to your trading strategy. This is because it is relatively easy to give in to emotions and tamper with trades in a manner that does not agree with your trading strategy.
Stay out of the market till the next signal
When you have taken trades in line with your trading strategy, stay out of the market and go about your daily activities until the end of the next trading day.
Bear in mind that all decisions you make must be implemented only at the end of the day. Therefore, it is not a good idea to move your trades to break even, for example, during the London session. You are not supposed to be looking at your computer screen during this period in the first place!
By staying out of the market until the next signal, you will be able to avoid falling into the trap of tampering with your trades or changing your trading strategy on a whim.
Example of an End of Day Trading Strategy
Here is an end of day trading strategy you can begin to practice with instantly.
20/40 Exponential Moving Average Crossover Strategy
This is similar to the example we saw above. However, instead of using a custom indicator, you will use the standard moving averages provided on most trading platforms.
- Set the first EMA to Period 20. Apply to close and change the colour to Yellow
- Set the second EMA to Period 40. Apply to close and change the colour to Red
- Apply on the daily chart
- Take a Buy trade when the Yellow EMA moves ABOVE the Red EMA.
- Take a Sell trade when the Yellow EMA moves BELOW the red EMA
- Set your stop loss above the latest high in a Sell trade. Set the stop loss below the latest low in a buy trade
- Do not place a take profit. Close the trade only when there is an opposite signal on the same pair.
- Move your trade to break even after going 350 pips into positive territory for pairs with their 10-day range above 100 and move to break even at 200 pips for pairs with their 10-day range below 100. Don’t know how to find this range? Use an automatic ADR indicator.
- Do not risk more than 2% of your account on any particular trade. This means you can comfortably afford to lose ten straight trades without dealing a permanent blow to your account.
The strategy above covers all aspects of a trading system and therefore ensures there will be no room for subjectivity in the long run. By setting a stop loss at nearest highs or lows and waiting until you are at least 200 pips in profit before moving to break even means you will be able to give the trade enough room to breathe.
Image of the strategy in action below: This is for a sell setup, but the same applies for a buy setup.
End of day trading is a philosophy that should be embraced by any beginner trader. Not being glued permanently to your charts is less mentally demanding and also highlights acceptance of the random nature of the markets.
Being less involved and avoiding chasing every minor swing in the market shows a good understanding of how trading works in general. You don’t need to be right and in control of everything in your trading.
Understanding this philosophy will equally prepare you for the transition to intraday trading if you ever decide to go back to that route much later in your trading career. However, experience shows that once you become profitable as an end of day trader, there is no going back!