Day Trading: The Evening Trader’s Playbook
Mastering the Evening Trading Session
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Why Trade the Evening Session?
Let’s address the question – why the evening session? Well, for one, your available free time might fall within these hours. Plus, the intraday volume tends to resemble a smile curve, often peaking around 6 pm when US traders return from lunch. During this period, certain strategies tend to work better, presenting a chance to capitalize on unique market dynamics.
Preparing to Enter the Markets
As with any trading session, preparation is key. Start by getting a feel of the current market conditions and thoroughly reviewing your trading plan. Next, screen for potential opportunities and note your trade ideas. Most importantly, ensure your trading environment is free of distractions to maintain optimal focus.
Let’s take a look at some strategies that traders can use for the Evening Session.
1. Noon Balloon Trade
This strategy is based on the observation that market movements often reach new highs or lows around lunchtime in New York, then stall. This situation presents a prime opportunity to exit trades or seek counter-trend rotations.
Triggers for this strategy might include an engulfing candle, ignition candle, or pin bar. Key level stopping price and daily chart alignment with your idea act as green flags. Stops can be set above/below the trigger bar, while targets can be identified at the VWAP, open, moving averages, or key levels.
2. Stretched Spring Reversal
This strategy is useful when the market is trading away from the VWAP in a rotational environment. Between 6pm and 7pm, the market often reverses back towards the VWAP. It’s generally a calmer and more rotational trade compared to the Noon Balloon.
Potential triggers include a mini trend line break or the break of a 5-minute candle high or low. Stops can be placed behind an intraday extreme, with targets at counter-trend cycle distance, a set number of bars, VWAP, or moving averages.
3. Afternoon Breakout Trade
In this strategy, you take advantage of the consolidation of a trending market at extremes, which usually leads to fresh levels in the final few hours of the day. It’s particularly effective in a strong trend environment where price has consolidated at extremes. A news event or catalyst could act as a green flag, and the trigger is the breakout of highs.
4. Trend Day Phase III
This approach works on the principle that trends typically occur in three distinct phases. When spread out across the day, the third phase often falls in the evening session, offering a lucrative opportunity to trade in the direction of the trend. Make sure you’re in a trend day type with the price extended away from the VWAP and two phases of the trend already played out. Stops can be set at an obvious structured point where the trend would break, with targets at new extremes or the end of the day.
Bottomline
The evening trading session offers many unique opportunities. As a trader, it’s your task to adjust to the day type, formulate trading ideas and levels, and execute your plan accordingly. By employing these strategies, you can better navigate the evening market dynamics and potentially enhance your trading performance. Remember, the key to successful trading is not only understanding the market but also adapting to its ever-changing conditions. Happy trading!