For an aspiring yet time-starved trader, an EOD approach may be the answer.
In an earlier article, we provided a broad overview of different trading styles available to traders. Today we will drill down into more detail on end of day trading (EOD) to discuss how to best approach this style, and the options available to you.
What is EOD Trading?
Whilst the name would imply that EOD trading occurs at the “end of the day” for the individual, it actually means a trade is entered and managed once the chosen market has closed. For example, an ASX 200 (AUS200) EOD trader would wait until the underlying cash market had closed before analysing the chart and deciding whether or not to place an order.
For many individuals, EOD trading would naturally occur after their regular working hours, although it really depends on which market is traded and which time zone the trader resides.
The beauty of EOD trading is being able to participate in the markets without being present in front of your computer. Of course, this also means you are not able to manage your positions until you are back in front of the screen. But, for some traders, this can be a benefit as it helps avoid them tampering with their trades unnecessarily and let the markets do its thing.
Who is EOD trading suitable for?
The two basic ways to answer this is to look at the time available and temperament of the individual.
For many retail traders, they simply do not have a lot of spare time on their hands to analyse markets and trade for long hours due to work of family commitments. Therefore, EOD trading could be suited to those who work or study regular hours, want to participate in the markets but do not have time to sit and watch their screens throughout the day.
Not all trading styles are suited to all individuals. EOD trading usually involves a ‘set and forget’ mentality, where the trader places their orders and then ‘forgets’ about them whilst they attend other commitments. Not all traders have the ability to ‘let the market do its thing’ in the background, in which case they may want to consider another timeframe or approach.
Therefore, EOD trading could be suitable for people who are happy to be away from their screens after placing a trade and want to fit trading around their day-to-day responsibilities.
Relationship Between Screen Time and Trading Timeframe
Generally, there is an inverted relationship between screen time and trading timeframe. So as a rule of thumb the lower the timeframe one trades, the more screen time can be expected. Whilst intraday traders or scalpers may have to watch their screens throughout their trading session and be ready to act at a moments’ notice, EOD traders are generally nowhere near their screens when their trades get triggered and the market action takes place.
Market Selection: Which Markets Are Best?
It is not really a case that one market is better than another, as they each have their own characteristics and nuances among asset classes. But a logical approach for EOD market selection is to see which markets are closed when you have free time to analyse and place trades. Ultimately the goal for any trader is to fit trading around their lifestyle, not change their lifestyle to fit a certain market.
A good place to start is to identify which times you are available to analyse and trade, then compare this to market closing times. In doing so you should be able to quickly filter out unsuitable markets to trade and then spend your time and energy on researching and trading suitable markets.
The above chart shows the trading sessions for popular markets and their timezone by GMT. By looking at when a market closes and scrolling along to your closest timezone, you should be able to see if it lands at a suitable time for you to trade as an EOD trader.
It’s worth noting that whilst cash markets close at specified times across the globe each day, stock market indices with FXTRADING.com allow near 24-hour trading 5-days a week. This allows our clients to trade live market prices out of hours and fine tune their entries.
Below are some hypothetical profiles of an EOD trader:
- An EOD trader in Sydney who starts work at 9am could consider EOD trades on forex pairs, S&P 500 (US500), FTSE 100 (UK100) or DAX 30 (DE30).
- If this same individual returns home by around 6pm, they could also consider placing EOD trades on Asian indices such as the S&P/ASX 200 (AUS200), Hang Seng (HK50) or Nikkei 225 (JP225).
- An EOD trader in the US could consider placing EOD trades before work on Asian indices, or place EOD trades on US indices after work.
- A late night worker in the UK who gets home around 12pm could place EOD trades on Asian markets, just hours before they officially open.
A Basic Routine for an EOD Trader:
Once your markets have been selected, it will be beneficial to outline weekly and daily routines to help keep on top of opportunities and manage your trades effectively. Below is a good starting point which you can modify as part of your own routine.
- View weekly charts of chosen markets to find new opportunities
- Review trades from the prior week to see where there could be improvements
- See the trading calendar for the forthcoming week, and / or read forward looking summaries such as our Weekly Roundup
- View open positions
- Raise/lower stop losses of open positions
- Analyse / scan for new opportunities
- Check calendar for potential high volatility events
- Enter new orders / positions which meet your strategies criteria
Methods to Apply EOD Trading:
As EOD trading is more of a lifestyle choice as opposed to an actual trading strategy, it leaves the same options available to trade via the use of technical analysis, fundamental analysis or automated trading.
You won’t get far with technical analysis if you cannot identify a trend. Once they can be identified, it opens up opportunities to become a trend trader (breakouts, buying the dip, classic trend following) or a counter-trend trader (mean reversion, reversals).
Many bespoke EOD strategies can be created by blending these core elements:
Scanners / Screeners:
A method to help reduce your analysis is to use a market scanner service (also called screeners or filters). Scanners allow the user to apply a host of technical and / or fundamentals filters to a watchlist to identify potential opportunities on their chosen markets.
For example, some will filter markets above or below a moving average, add Japanese candlestick patterns, volume analysis and even fundamental information. Some website offer such facilities for free whilst more complex versions will cost a monthly fee. However, as an EOD trader does not require real-time data, the fees are usually nominal.
If a trader prefers a discretionary approach but requires help with idea generation for their trades, there are a number of services which provide trading signals and analysis. Of course, an obvious place to start is to check out our inhouse analysis within the FXTRADING.com market analysis section. Here you will find daily and weekly reports which outline high volatility events to be aware of, with analysis of forex, indices, commodities and crypto.
Entering EOD Trades:
For an in-depth view of how the different order types work, please refer to our guide: Order Types Within MT4
EOD frequently use stop orders, as they allow a trade to be entered once markets pass through a particular price without the trader being present. This means that an EOD trader is typically entering on a breakout strategy.
In this example, a strong downtrend has been identified and prices are currently consolidating. A sell-stop order has been set beneath the consolidation area to ‘catch’ a bearish breakout if it occurs. A stop loss and take profit has also been set.
Using the same example, limit orders can also be used to enter EOD trades with greater precision. This is not a type of order that newer traders typically begin with, but they do allow for finer tuning of the entry price.
Market orders require the trader to be at their computer to place the trade, which may not be suitable for everyone. However, an advantage with this approach is the trader can monitor price action to decide if they still want to go into the trade.
For example, if a market gaps past the desired entry by a considerable amount, the trader can decide not to enter if it negatively impacts their reward to risk ratio. Using a stop order under this scenario would mean the trade would have been triggered at a level way beyond the desired entry level.
Managing Open Trades as an EOD Trader
As EOD traders enter on the daily chart, they typically only adjust their stop loss a maximum of once a day. But that is not to say it must be adjusted daily, if the market is taking its time to move in their favour. Of course, if the trade is stopped out then no further management is required.
On this S&P 500 chart we show two basic methods to manage a stop loss (SL) on the daily chart.
- Manual adjustment of SL using technical levels
- Manual adjustment using an indicator to define SL levels
The classic approach is to manually trail the stop loss behind technical levels once the market moves into profit. This could be as simply as trailing it behind swing highs or lows, or simply trailing it behind the prior day’s high or low. Some traders go further and create systems. In the example above, the stop is trailed to a prior swing once prices hit a 3-session high after a retracement.
The green line represents an indicator of an ATR trailing stop. As this is an indicator, it simply displays where a stop loss could be placed and does not change the stop level for you. In this example the stop loss is 2x ATR (average true range) from the closing price and ‘trails higher’ when the market rises to level greater an +2 ATR.
Under the market conditions presented, the ATR stop did a better job of squeezing more potential profit out of the move, although the manual approach at times had a tighter stop and was moved earlier.
Factors to Consider Before Placing an EOD trade:
Is there a risk event that day?
As an EOD trader is not expected to be at a screen when the markets are open, it leaves their open trades vulnerable to spikes of volatility which can potentially stop then out of a trade prematurely. It could then be wise to not open trades the day of (or before) a potentially volatile event such as an FOMC meeting or Nonfarm payroll release.
Of course, volatility can also benefit the trade. But the idea of avoiding igh calendar events near trade entry is to reduce the probability of being stopped out of a trade prematurely from news-driven volatility.
Does your market impose a lot of headline risk?
A good example of headline risks dominating a particular market is the impact Brexit has had on GBP pairs. A politically driven market can wreak havoc to a technical trading system, so caution should be used when deciding whether to trade a market with lots of headline risk, when your system does not account for such trading conditions.