Why We Trade at the Close

Mr. Radtke has been actively trading stocks, ETFs, and options since 2008. Over the past several years he has become increasingly involved with the Connors Group family of companies, first as a student, then as a member of Chairman’s Club, and finally as a consultant, researcher, and author.

Many of the strategies that we have published over the years recommend entering and/or exiting trades at the close (4:00 PM Eastern US Time). Newer traders may wonder how best to implement this practice, so in this article we will review the different mechanisms that traders typically use.

1. Live trading just before market close
   
   This is the most obvious solution. A couple of minutes before the close, go through your list of trade candidates and see which ones have met the entry or exit criteria for the day. If all criteria are satisfied, you can place your trade as a market order.There are a couple of disadvantages to this approach. One is that you actually need to be sitting at a computer a few minutes before market close. If you’re not a full-time trader, this may not be feasible. Another problem is that if you have a large number of potential trades to evaluate, it may take a significant amount of time to evaluate them all and place your orders. Placing trades at 3:30 PM ET doesn’t really qualify as “trading at the close”.

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1. Live trading just after market closeAlthough the US stock market officially closes at 4:00 PM Eastern Time, many stocks continue to trade for at least 20 minutes after the close. Thus, you can wait to see where the stock actually closes for the day, and then place your order a minute or two later if your criteria are satisfied. This is particularly useful if it’s very difficult to tell whether one of your trade indicators is going to cross a required threshold or not. By waiting until after the actual close, you’ll know where the stock finished up for the day.Be aware that on most trading platforms you have to specify in your order that you want the trade to be completed in the after-hours market. By default, if you enter an order at 4:01 PM it will be interpreted by the system as a regular order for the next trading day, not an extended hours order for today.Also note that trading volume typically plummets when the market closes. This causes market orders to become very risky. When trading after hours, it’s best to always use limit orders so that you have control over the price.
2. Limit orders submitted at a predetermined timeIf you know the price at which you want to enter or exit your trade, see if your trading platform will allow you to specify a submittal time when you create your order. This would allow you to create your order at any time during the day, and specify that it not be submitted for processing until, say, 3:58 PM ET. Using this method, you can even place your orders the night before. Just remember to use limit orders with a price that meets your entry or exit criteria.Of course, most trading strategies don’t actually specify an entry or exit price, but rather a set of indicators whose values must reach a certain threshold. If you’re lucky, your trading platform might support adding conditions to your order, so that you can specify, for example, that you only want to close your trade if the RSI(2) value is above 70 when the order is submitted. In other cases, you will need to manually determine the price that satisfies your indicators. There are many tools for doing this, including the RSI Solver tool on the Trading Markets website.
3. Limit on Close (LOC) ordersSome platforms also support the concept of “Limit on Close” (LOC) and/or “Market on Close” (MOC) orders. An LOC order is very much like the previous case where you specify an order submittal time, except in this case your broker’s system automatically processes the order a few seconds before the market close.Note that there is typically a 20-30 minute “freeze” before market close when you can neither enter new LOC orders nor cancel existing ones. Thus, if using LOC orders you will need to enter them earlier in the day or the night before.

We hope that you have found this information helpful. Make sure to explore the capabilities of your broker’s trading platform(s), as there is often a great deal of useful functionality that is not readily apparent.