In the world of trading, one debate that is ever present is whether a trader should focus on end of day trading or intraday trading. There is no definitive answer because a lot of variables must go into this decision, not least of which is each trader’s strengths and weaknesses, and their personality traits.

Having said that, end of day trading does offer many more benefits compared to intraday trading. In this article, we’ll take a look at some of the major benefits of end of day trading. You’re sure to find some useful nuggets, so let’s get started.

End of Day Trading vs. Intraday Trading

There is a lot of discussion around end of day trading versus intraday trading. But what exactly is the difference between them? Well, the simplest most direct definition of end of day trading is that it entails trade analysis and execution based primarily on the daily charts and above. On the contrary, intraday trading revolves around trade analysis and execution based primarily off of intraday time frames lower than the daily chart. So, intraday trading tends to be much more short-term and often focuses on timeframes such as the five minute, fifteen minute and thirty minute.

For the most part, swing traders and position traders focus on end of day trading strategies, whereas day traders tend to focus on intraday trading strategies.

There are some distinct advantages in employing end of day trading timeframes over the shorter intraday trading timeframes. Many of the pitfalls that both beginning and experienced traders fall into can often be avoided with trading higher time frames. Overall, as an end of day trader, you will benefit by becoming more focused and disciplined in your trading efforts.

Now let’s get into more detail and list the top 10 reasons why end of day trading is a better choice than intraday trading.

More Reliable Trade Setups

If there’s one thing that you need in order to make consistent profits from the markets, is a definable edge. A definable edge requires a certain probability for success that can be predicted fairly reliably. So whether you are a chart pattern trader, an indicator based trader, support and resistance trader, or any other type of trader, you will undoubtedly find that the daily timeframe offers some of the cleanest price action signals on the chart.

And thus, we can expect on average that we will have a better follow through on various technical patterns on the daily chart, as compared to the much shorter time frames. The price action composed of daily bars is just cleaner and easier to read. One of the primary reasons for this is that each daily bar consists of a full day’s worth of trading and thus there is much less random noise generated within it. This ultimately leads to end of day setups being more reliable and predictable.

As every trader knows or comes to realize eventually, trading is a game of probabilities. The more we can shift the probabilities in our favor, the better chance we will have in extracting profits from the market from whatever edge that we have. The inherent nature of the daily chart makes this task so much easier for us.

Reduces Overall Stress

Many people are familiar with the typical image of a day trader sitting in front of a multi-monitor screen, ready to make a dozen or more trades before lunch time. They are often glamorized as big risktakers who lay it all on the line each trading day. Then at the end of a trading session, he drives off in a red Ferrari having either made or lost hundreds of thousands of dollars.

Though this stereotype is quite exaggerated, Intraday traders are typically required to stay in front of their computer screens for relatively long stretches during the day. At the same time, they need to remain laser focused on the price action at hand, so as not to, miss any potential setups. This can certainly cause mental fatigue and increased stress levels. So I can assure you in reality, daytrading is much less glamorous than the movies would have you believe.

Most professional traders realize that intraday trading is not built for longevity. Those who have tried it for any period of time, realize that the burnout rate is quite high.

As a result, most successful traders who have been in the game for any significant period of time, tend to classify themselves as either swing traders or position traders. Aside from the bigger potential associated with an end of day swing trading strategy, the ability to trade in a more relaxed state of mind, can also contribute greatly in achieving better bottom-line results.

Lower Transaction Costs

One of the most overlooked components of intraday trading is the overall costs in terms of commissions, bid ask spreads, and slippage. When you factor in these various costs, you’ll find that it becomes a big obstacle to achieving success at lower time frames than it does at higher time frames such as the daily chart.

This is a concept that is somewhat perplexing to many beginning traders because they assume that the total transaction costs associated with trading is the same when employing very short-term time frames as they are with longer-term time frames. Well, they are correct in that the actual raw cost may be the same, however, this cost must be measured from the perspective of potential profit. This is to say that transaction costs should be accounted for on a relative basis.

To illustrate this in more detail, let’s say that we have Trader A and Trader B. Both of whom are trading the EURUSD currency pair. And both of whom trade with the same broker, wherein the broker charges a fixed 2 PIP spread on the pair. Trader A is an intraday trader and targets a 20 pip profit, while trader B is a position trader and targets a 200 pip profit.

Now let’s assume that the broker for both of these traders does not charge any commission; only the two PIP spread mentioned. And for the sake of simplicity, let’s also not factor in any slippage cost. Trader A would wind up paying two PIPs to open a trade and two PIPs to close a trade, which is essentially the broker spread. That’s a total of four pips to round turn on the position.

Now remember, this trader has a target profit of 20 pips, which means that the relative spread cost is 20% of their potential profit. On the other hand, Trader B who is targeting 200 pips would have a relative spread cost of just 1% of their potential profit. Can you see the huge disparity between the two? As a result, over time end of day trading signals offers a much more favorable cost structure over intraday trading signals.

Ability To Make Larger Gains

When you concentrate on end of day trading, you are able to capture much larger moves in the market compared to intraday trading. Most intraday traders tend to be flat at the end of the trading session. This limits the profit potential to each day’s trading range.

For example if you’re trading the euro futures contract and the average daily range is 200 ticks, then the average daily range in dollar terms would equal $1250. This is because each tick in the euro futures contract is worth $6.25. As an intraday futures trader, you may be able to capture 20% of that overall range at best which would mean that on a good day you might expect to make $250 per contract.

On the other hand, if you’re trading the same euro futures contract and holding a position for two weeks or so, you could reasonably expect to make $1500-$2000 per contract. The potential for large profits tends to come with bigger moves in the market. And to capture bigger moves in the market, you must focus on trading higher time frames such as the daily chart and above.

After you understand that intraday trading strategies can often limit our overall trade profitability, you will begin to have a better appreciation for the value of an end of day trading system as a driver of larger profits.

Allows You To Keep You Day Job

From the financial perspective, end of day trading is much more suitable for most traders. The reason for this is that as an end of day trader, the time commitment required for effectively analyzing, executing, and managing your positions is relatively small. In fact, many end of day position traders need only spend an hour a day on their trading business. This is often sufficient time to perform all the required tasks around an end of day trading model.

The obvious benefit of this is that you can maintain a day job as you gain experience and build up your trading account. This is in direct contrast to what some other trading educators teach. They would have you believe that in order to become a proficient trader that you must devote a full-time work schedule to it. These people tend to be the same ones that push intraday trading tactics over end of day trading methods.

The problem with this line of thinking is that unless you’re starting off with a large base of capital, it is unrealistic to believe that your trading income can match or surpass the income that you would earn from a day job. And so, I believe that the best course of action for beginning traders is to keep their day job, so that they have a consistent source of income that they can rely on for their basic living needs. They should treat their trading account as a mechanism for capital growth.

Cheaper Better Data

Data is a trader’s best friend. Without it, you would not be able to back test your strategy. Whether you are a systems trader that performs back testing through an automated back testing engine, or a discretionary trader who performs back testing by going back through the charts manually, there is a need for reliable historical data.

End of day historical data is more readily available than intraday data. In addition to that, end of day data is typically much more reliable compared to intraday data. There are plenty of data sources in the market where you can purchase 20, 30 or even 50 years of end of day data. However, when it comes to tick data or even intraday minute data, it can be a challenge to find a data source that has more than 10 years of quality data.

As a result, an end of day trader is in a much better position when it comes to back testing their strategies over a longer period of time. This helps build more confidence when trading a strategy or system, since it has gone through a stress test that extends over many different types of market conditions.

Aside from the ability to access end of day data much easier, most data sources will tell you that their end of day data is cleaner and more reliable than their intraday data. Finally, there is the component of cost of historical and real-time data. Both the cost of historical and real-time intraday data will be significantly higher. Typically for end of day traders, delayed data is typically sufficient for trading the market.

Prevents the Overtrading Trap

One of the big misconceptions that we’ve been taught from childhood is that the time that we put into an activity is often directly related to the results that we can expect from it. One example of this can be seen in the way that most people view the relationship between time and work.

For example, if you are an employee or even a business owner, there is a certain amount of value that you put on your time. That could be $20 an hour or $200 an depending on your profession. Now most people believe that the best way to increase your overall income is by increasing the amount of time spent working, this will produce an additional X dollars for every unit of time spent on the activity.

While this type of thinking might be relevant for some in their work-related world, it is completely baseless when it comes to trading the markets. But this misconception is with us nevertheless at the subconscious level. And so, this thought process plays out in our minds when we are engaged in the markets. We have a constant need for trading more, because we believe at some level that by spending more time trading, we should make more money trading. This, however, couldn’t be further from the truth.

By focusing on the end of day timeframe in our trading activities, we are able to suppress this urge to overtrade. By default, since the daily chart only prints one bar per instrument per day, we are limited in our analysis. Most of the time, this limitation can act in our favor by keeping us from overtrading our accounts. Instead we will be forced to focus on the best opportunities that are present on the daily chart.

Less Sensitive To News Events

Intraday traders must be ever cognizant of short-term volatility spikes that are caused by economic reports and other news events. When highly anticipated reports are released, they can cause major gyrations in the market that can adversely affect intraday traders. This is because most intraday traders typically have very tight stops in the market. They rely on smaller profits and a larger volume of trades.

These tight stops can be easily hit and price action can even gap through these levels on extreme volatile news. This can be a dangerous scenario for day traders and cause losses that are many multiples of their intended risk exposure.

The effect of news events is much less pronounced when it comes to trading end of day charts. Many times on the daily chart, we may not even recognize the volatility within the session, because in the overall context of the daily timeframe it’s a relatively minor event. As a result, end of day traders are inherently able to protect their position from these day-to-day gyrations that can prey upon intraday traders.

Though it’s always important for all traders to be aware of important economic reports and news releases, the risk of unanticipated losses is much less for the end of day trader then it is for the intraday trader. The danger of intraday volatility risk cannot be overstated as many day traders can attest to.

Larger Return on Time

We briefly touched upon the relationship between time spent on trading and the potential profits that can be realized. That is to say, that the two have no real correlation to each other. In fact, I would argue that the less time that you spend on trading, the more that you will actually make from it. I have seen this over and over again, as new traders switch from hyperactive daytrading to a more subdued end of day trading approach.

So in that regard, if we measure our return on time, rather than the traditional return on capital metric, we will often find that the returns realized from end of day trading will greatly surpass that of intraday trading.

This concept is somewhat hard to grasp at first. But as you become a more experienced trader and have had a chance to get your feet wet trading different time horizons, you will inevitably come to this realization. All of this is counterintuitive, but it’s something that you need to be mindful of, if you’re looking to follow the path of least resistance in your trading journey.

Helps Balance Life Outside Trading

Although sometimes it feels as if trading the markets is the most important activity that we engage in during the day, we must remember there is life outside the markets.

End of day trading helps us balance the time we spent trading the markets with other important activities such as the time that we spend with our families and staying involved with other interests in our lives.

There is a fine line between being committed and passionate about the financial markets and becoming overly obsessive with it. The markets will always be there, but we have to learn to separate ourselves from it from time to time. End of day trading allows us that freedom to participate in the markets in a healthy way and one wherein we avoid getting too burned out by being constantly around it.

Many times you can be more productive in your trading after you have stepped away from it for a while, and then come back refreshed. Unfortunately intraday traders, who are engaged in the market each and every day may not have the luxury of taking a few days off away from the markets. This constant immersion can prevent them from rejuvenating their brains, which is essential for optimal trading performance.

Summary

As we conclude this lesson on the benefits of end of day position trading, we should also note that each individual trader is different and will thrive in different environments. Personality should certainly be considered in the selection of trading style and timeframe. The primary point being conveyed here is that all things being equal, end of day trading will often have a distinct advantage that can lead to better overall trading results.

But as with everything in life, you must get experience in different trading styles and in applying strategies on different time frames, in order to find your comfort level. One interesting aspect of the end of day versus intraday debate that’s worth a consideration is that there are generally many more traders that find success in the markets after switching from a shorter intraday time horizon to a longer end of day time horizon. The same however cannot be said of the reverse.