Using After-Hours Trading to Plan the Next Day

August 31, 2023 Advanced
Some traders use after-hours trading as a way to analyze their trades and look ahead to prepare for the next trading day.

Once the equity markets close for the day, some traders start to prepare for the next trading day. Paying attention to markets that remain open during non-traditional hours can help traders identify potential patterns that might emerge during the next trading day. Taking time after-hours for trading prep can be invaluable in helping a trader analyze their past performance, study potential opportunities, and plan specifics of future trades without the turbo-charged emotions and excitement that the day session can provide. Because the after-hours trading sessions tend to be less hectic, it can be a good time to make these preparations. And although the after-hours trading sessions can present their own liquidity and other market risks, some traders even trade the markets available during these late-night sessions.

Using after-hours trading to prepare for the next trading day

Establishing and following a set routine after the markets are closed and during the after-hours trading of the New York Stock Exchange (NYSE) session could potentially produce more focused, planned, and thoughtful trade entries.

If this routine can become habit, a trader might learn to thoughtfully analyze the results of the trading day and prepare for the next day.

Here are four steps a trader can consider incorporating into their after-hours routine:

  1. Evaluate trading performance. Assess successful and unsuccessful trades and identify the potential factors that contributed to the various trading outcomes of the day.
  2. Analyze each individual trade initiated. Many traders create trading rules for themselves and then evaluate whether they executed their trading plan according to their established rules. It might be helpful for traders to record each trade in writing and consider whether the expected outcome matched the actual outcome and whether the trade matched the market's current posture.
  3. Prepare for the next trading session. After analyzing the day's trades, a trader can prepare for the next session by identifying mistakes and considering how to avoid repeating them in future trades.
  4. Identify how trades may be setting up in the next trading session. Write down potential trading spots with entry and exit points, objectives, and stop-loss1 points. By looking at the direction of the futures markets and other after-hours trading information, a trader might be able to identify potential opportunities ahead of time and prepare accordingly.

Developing a routine to study performance and plan for potential market entry and exit points can remove traders from the daily noise and can potentially allow for increased objectivity and continued research and education.

After-hours trading markets

Some markets continue trading after traditional market hours. For example, some futures, options on futures, and currency products might be available to qualified account owners almost any hour of the day. Some products available to trade include:

  • Futures on stock indexes the S&P 500® index (/ES)
  • Commodities like Crude Oil (/CL), Gold (/GC), and agricultural products
  • Foreign currencies in both the futures and retail forex markets
  • Other securities

Additionally, qualified Schwab account owners can trade select securities 24 hours a day, 5 days a week (excluding market holidays). Such extended hours overnight (EXTO) orders are available 24/5 on the thinkorswim® platform.

Risks of after-hours trading

While trading in the after-hours session can offer opportunities, there are unique risks for traders to consider.

  • Uncertain prices: In the regular session, the quotes are consolidated and represent the best available prices across all trading venues. In the after-hours market, on the other hand, traders may see prices from only one venue, and these may not reflect the prices displayed in other electronic trading systems for the same security.
  • Lower liquidity: Because generally fewer shares trade after hours, there can be wide spreads between the bid (the highest price offered by all buyers) and the ask (the lowest price offered by all sellers). Some stocks may simply not trade after hours.
  • No index values: Index levels generally aren't calculated or disseminated for public use after hours, which could pose a challenge for individual investors hoping to trade certain index-tracking products in the after market. Professional traders may have access to proprietary systems that can quickly calculate index values based on individual stock prices, which generally gives them an edge over individual traders.

Bottom line

With the help of after-hours trading, it's possible to take advantage of potential opportunities immediately, and then prepare to take advantage of other opportunities the following day. Of course, trading in the extended sessions isn't for everybody. Those traders who understand both the potential risks and opportunities, however, could find it worthwhile.

1There is no guarantee that execution of a stop order will be at or near the stop price.

Futures and futures options trading involves substantial risk and is not suitable for all investors. Please read the Risk Disclosure Statement for Futures and Options prior to trading futures products. Futures and forex accounts are not protected by the Securities Investor Protection Corporation (SIPC). Forex trading involves leverage, carries a high level of risk and is not suitable for all investors. Please read the NFA Booklet Trading Forex: What Investors Need to Know prior to trading forex products.

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Futures, futures options, and forex trading services provided by Charles Schwab Futures and Forex LLC a CFTC-registered Futures Commission Merchant and NFA Forex Dealer Member. Charles Schwab Futures and Forex LLC is a subsidiary of The Charles Schwab Corporation.

Trading privileges subject to review and approval. Not all clients will qualify. Forex accounts are not available to residents of Ohio or Arizona.

Additional CFTC and NFA futures and forex public disclosures for Charles Schwab Futures and Forex LLC can be found here.

The "S&P 500® Index" is a product of S&P Dow Jones Indices LLC or its affiliates ("SPDJI"), and has been licensed for use by Charles Schwab & Co., Inc. ("CS&Co."). Standard & Poor's® and S&P® are registered trademarks of Standard & Poor's Financial Services LLC ("S&P"; Dow Jones® is a registered trademark of Dow Jones Trademark Holdings LLC ("Dow Jones"). 

The information provided here is for general informational purposes only and should not be considered an individualized recommendation or personalized investment advice. The investment strategies mentioned here may not be suitable for everyone. Each investor needs to review an investment strategy for his or her own particular situation before making any investment decision.

All expressions of opinion are subject to change without notice in reaction to shifting market conditions. Data contained herein from third-party providers is obtained from what are considered reliable sources. However, its accuracy, completeness, or reliability cannot be guaranteed.

Examples provided are for illustrative purposes only and not intended to be reflective of results you can expect to achieve.