The afternoon session, particularly the final hour of trading known as the power hour, offers some of the best opportunities for day traders. Volume picks up, trends establish themselves, and institutional traders make their moves. This guide will show you how to capitalize on afternoon trading setups.
Understanding the Afternoon Trading Session
The afternoon session runs from roughly 1:00 PM to 4:00 PM Eastern Time. After the midday lull (typically 11:30 AM to 1:00 PM), trading activity gradually increases as traders return from lunch and institutions begin positioning for the close.
Key insight: The last hour of trading (3:00 PM to 4:00 PM) is called the power hour because it often sees the highest volume and most decisive price movements of the day.
Why Trade the Afternoon Session?
Many successful traders prefer the afternoon for several reasons:
- Clearer trends: By afternoon, the day's direction is usually established, making it easier to trade with the trend.
- Higher volume: The power hour often rivals the opening hour in terms of volume and liquidity.
- Institutional activity: Large funds often execute orders near the close, creating momentum you can follow.
- Less noise: The choppy, indecisive price action common in the morning often settles by afternoon.
- Better risk-reward: With less time until the close, you can define your risk more precisely.
Best Afternoon Trading Setups
1. The Late Day Breakout
Stocks that consolidate during midday and then break out in the afternoon often see strong follow-through. These breakouts are more reliable than morning breakouts because they have been tested throughout the day.
Example Setup
Stock ABC gaps up in the morning to $50 and consolidates between $49.50 and $50.50 from 11 AM to 2 PM. At 2:30 PM, volume picks up and the stock breaks above $50.50.
- Entry: Buy at $50.60 on the breakout with volume confirmation
- Stop loss: Below the consolidation at $49.40
- Target: $51.50 or higher, depending on the stock's average range
2. The Power Hour Momentum Play
During the power hour, stocks that have been strong all day often see a final push higher as buyers pile in before the close. Look for stocks near their daily highs with increasing volume.
Example Setup
Stock XYZ has been trending up all day and is $0.20 from its high at 3:00 PM. Volume starts increasing as the stock makes a new high.
- Entry: Buy when the stock makes a new high of day after 3:00 PM
- Stop loss: Below the most recent 5-minute swing low
- Target: Hold for the final push into the close or exit at a predetermined profit target
3. The End of Day Reversal
Sometimes stocks that have been weak all day see buying come in during the final hour. Traders who were short cover their positions, and bargain hunters step in. Look for oversold conditions combined with increasing volume.
4. The VWAP Reclaim
Stocks that trade below the Volume Weighted Average Price (VWAP) all day and then reclaim it in the afternoon often see continuation. The VWAP acts as a key level that institutional traders watch.
Pro tip: Watch for stocks that reclaim VWAP between 2:00 PM and 3:00 PM. If they hold above VWAP, they often push higher into the close.
Power Hour Trading Strategies
The power hour requires specific strategies to handle the increased volatility and volume:
Follow the Trend
By 3:00 PM, the day's trend is usually clear. If SPY or QQQ is up for the day, focus on buying strong stocks. If the market is down, look for shorts or avoid trading altogether.
Use Smaller Time Frames
During the power hour, switch to 1-minute or 2-minute charts to catch the quick moves. The increased volume makes these smaller time frames more reliable.
Watch for the 3:50 PM Surge
The final 10 minutes often see aggressive moves as market-on-close orders execute. Be cautious about holding positions into this window unless you have a clear plan.
Risk Management for Afternoon Trading
Afternoon trading requires disciplined risk management:
- Reduce position size near the close: The final 15 minutes can be unpredictable. Consider taking profits before 3:45 PM.
- Use time stops: If a trade is not working by 3:30 PM, consider exiting regardless of price.
- Avoid fighting the trend: Late-day reversals happen, but betting against a strong trend in the power hour is risky.
- Watch the overall market: Individual stock moves in the afternoon are heavily influenced by SPY and QQQ direction.
Tools for Afternoon Trading
Successful afternoon traders use several tools to find opportunities:
- Volume scanners: Look for stocks with unusual volume picking up in the afternoon.
- High of day scanners: Find stocks making new highs after 2:00 PM.
- VWAP indicator: Track which stocks are above or below VWAP.
- Relative strength: Identify stocks outperforming the overall market.
Common Afternoon Trading Mistakes
Avoid these common errors that trap afternoon traders:
- Chasing extended stocks: Just because a stock is at its high does not mean it will go higher. Wait for proper setups.
- Ignoring the overall market: Even the best stock setups can fail if the market turns against you.
- Overtrading the power hour: Quality over quantity. One or two good trades is better than five mediocre ones.
- Holding losers into the close: Hope is not a strategy. Cut losses before they grow.
Track Your Afternoon Trading Performance
Pro Trader Dashboard shows you exactly how you perform during different market hours. Discover if afternoon trading is your strength and optimize your schedule accordingly.
Summary
The afternoon session, especially the power hour, offers excellent trading opportunities for those who know what to look for. Late-day breakouts, momentum plays, and VWAP reclaims are all high-probability setups. Focus on stocks with increasing volume, trade with the trend, and manage your risk carefully as the close approaches.
Want to learn about other trading times? Check out our guide on morning trading routines or learn about lunch hour trading strategies.