Historically, to keep the trade parameters on the official trades relatively simple & straightforward, I’ve only considered both the entries & exits (price targets or suggested stops hit) for trades that occurred in the regular trading session from 9:30 am – 4 pm EST. However, I’m now considering adding criteria to some and possibly all the official trades for the closing trade for profit targets only (not stops) to including fills in the pre-market & after-hours session.
One reason that I prefer index futures to ETFs is that so often, such as last night with /NQ, which I reversed from short to long just above my 7275 target, as well as the QQQ official short trade, which hit a low of 177.56 yesterday evening at 6pm EST in the after-hours trading session vs. the final price target (T3 of 177.74). As such, those in the QQQ short trade could have had their position closed out at T3 with a simple “allow order to be filled outside of regular trading hours” qualifier to a Good-Til-Cancel Buy-To-Cover at 177.74 to their order ticket.
Something that I’ve covered in the past on numerous occasions, especially during earnings season or periods of elevated market volatlity, is my preference to set my closing orders on a trade for my preferred profit target(s), but not my stop-loss orders, allowed to be filled in the pre & post-market trading session. My logic is this:
The goal of any trade is to hit your price target for a profit while not being stopped out for a loss. As such, one can use to their advantage the large price swings that often occur in the pre-market & after-hours trading session during periods of elevated market volality as well as when during earnings season, when stocks (and sometimes the entire market) often experience very sharp initial knee-jerk overreactions to the initial release of an earnings announcement or comments during the company’s subsquent conference call.
By having an open order to close your position (a sell limit if long or a buy-to-cover limit order if short) that is set to “allow to be filled outside regular trading hours” (which by default, should also be filled in the regular session as well with most or all brokers), you are able to take advantage of the sharp price swings that often take a stock or ETF up or down to a key support or resistance level in which other traders will be buying or selling at. Over the years, I’m seen numerous occasions where a stock or index made a sharp move in the pre-market or after-hours session to hit & then reverse off a key support/resistance level, quite often one of my price targets, only to have the security reverse sharply from there & going on to open well above/below that level at the opening bell & never look back, therefore offer an objective exit at the profit target on the trade for those that closed the position before the market opened.
Likewise, I’ve had many profitable trades over the years by entering a long position on a pullback to support or a shorting a bounce into resistance in the after-hours or pre-market sessions. Other than periods of elevated market volatility such as we have now (with the QQQ short trade offering a chance to book profits at T3 yesterday evening), I’ve found similar opportunities during earnings season such as going long a stock that falls very sharply (i.e.-oversold) to a well-defined support level on the initial knee-jerk reation to earnings, only to see the stock reverse from there with the buyers stepping in in full force once the market opens the next day and/or after rosy forward guidance is provided on the subsequent conference call.
I am a huge proponent of using OCO/OCA orders (one-cancels-the-other aka one-cancels-another). After entering a trade, you immediately place an OCO order with a sell limit order at your target price along with a stop-loss order at your stop price, setting both GTC (good-til-canceled) and then sit back & let the trade play out. Not only do OCO orders provide the convenience of not having to be in front of a computer or constantly monitoring your position but where I think the biggest benefit for most traders & investors comes in would be the pyschological component of trading, in which many investors & traders second guess their position every time it moves against them.
OCO orders help to provide the discipline that many traders & investors lack when in a position without a pre-defined trading plan (what I am going to buy, where I am going to buy it, how much I am going to buy, where I am going to sell if correct (profit target) and where am I going to sell if wrong (stop-loss). Remember, failing to plan is analogous with planning to fail.
Bottom line is that while I try to keep the parameters on the trade ideas straightforward, I may start to make a suggestion to set the closing order(s) at one’s preferred price target(s) to include the pre & post-market trading sessions & whether I do that or not, I figured that I’d pass along the suggestion it isn’t a bad idea for just about any trade.
For those unfamilar with OCO/OCA orders or even basic order types & parameters (e.g.- day order, GTC order, limit order, stop-loss, stop-limit order, etc.), I would highly suggest becoming familiar with the various trade types & conditionals. I have yet to come across any broker that didn’t have an extensive collection of informational articles & a glossary of terms on the various order types & conditions.
OCO/OCA orders (which you should be able to find on your broker’s website via a quick search) are usually found under ‘conditional’ or ‘advanced’ order types. If you have a hard time locating information on order types, most brokers will be glad to walk you through them on the phone & I’ll be glad to answer any questions as well (best to post in the comment section below this post).