Trading Near the Bells Part 2: The CloseIn this second part of our series, we shift focus from the market open to the close—the final hour of the trading session. The dynamics of the close are different from the open because the time to act is much shorter. Unlike the open, where you have the whole trading day ahead of you, the close compresses decisions into a much tighter window. This makes the strategies and the mindset for trading the close unique.
In this section, we'll cover two core strategies for trading the close—one momentum-based and one focused on mean reversion. Whether you're riding the final burst of a trend or capitalising on an overextended market move, these setups can help you navigate this high-stakes period effectively.
The Significance of the Close
The final hour of trading—the "Power Hour" —is dominated by institutional traders and large funds rebalancing their portfolios, closing positions, or placing large end-of-day orders. Retail traders often close out positions as well, creating an environment where liquidity spikes and volatility increases. This surge in activity can lead to significant price swings, especially in individual stocks with strong intraday trends or overextended moves.
What happens during this period can set the stage for the next day’s market action. If the close is strong, closing at or near the high of the day, it suggests that buyers were in control and may continue pushing prices higher the following day. Conversely, a weak close at the low could signal selling pressure carrying over into the next session.
Two Key Strategies for Trading the Close
We’ll explore two strategies tailored for this critical time frame. These setups are designed to take advantage of the distinct characteristics of the close: heightened volatility, fast price action, and end-of-day positioning.
Strategy 1: Run into the Close (Momentum)
The "Run into the Close" strategy tends to work well on days where the market has been trending strongly. This strategy takes advantage of the final surge in momentum as large traders and funds push prices even further in the direction of the trend.
This is particularly effective if the market is breaking out from several days of price compression. The idea is to enter on a pullback in the final hour and ride the momentum into the close.
Setup:
• Look for an established trend during the trading session, with price ideally breaking out of multi-day consolidation.
• Watch for a small pullback in the last hour, ideally to the 9-EMA on the 5-minute chart.
• Wait for price to break back above the 9-EMA after the pullback.
Entry:
• Enter following the break back above the 9-EMA on the 5-minute candle chart.
Stop-Loss:
• Place your stop below the low of the pullback.
Trade Management:
• Use the 9-EMA for dynamic risk management—if price closes below it, consider exiting early.
Target:
• Hold the position until just before the close, capturing the final push of momentum.
Example: The S&P 500 had been trending up all day, breaking out from a tight multi-day consolidation. During the last hour of trading, the market pulls back briefly, touches the 9-EMA, and then breaks back above it. This is your entry signal, allowing you to ride the trend into the final minutes of the session.
S&P 500 5min Candle Chart
Past performance is not a reliable indicator of future results
Strategy 2: Revert to VWAP (Mean Reversion)
The "Revert to VWAP" strategy is a mean-reversion play that tends to work well when the market is overextended going into the last hour of trading. Often, prices can move too far from the day's volume-weighted average price (VWAP), and late in the session, there is a tendency for price to revert back toward it.
This strategy uses the Relative Strength Index (RSI) to identify overbought or oversold conditions and then waits for a break of recent swing highs or lows on a 5-minute chart to trigger the entry.
Setup:
• Look for an overextended market going into the final hour of trading. The price should be far away from VWAP.
• Check RSI on a 5-minute chart for overbought (above 70) or oversold (below 30) conditions.
• Wait for price to break above a recent swing high (for a reversal from oversold) or below a swing low (for a reversal from overbought).
Entry:
• Enter a long position if the price breaks above a swing high (from oversold conditions).
• Enter a short position if the price breaks below a swing low (from overbought conditions).
Stop-Loss:
• Place your stop just below the recent swing low (for long positions) or above the recent swing high (for short positions).
Target:
• Target VWAP as the price reverts back toward the average.
Example: As we approached the final hour of the day, the S&P 500 index had moved into an oversold position on the RSI when it tested a key level of swing support. This was followed by a break above a small swing high – triggering a move back towards the true average price for the day – VWAP.
S&P 500 5min Candle Chart
Past performance is not a reliable indicator of future results
Conclusion
Whether you’re aiming to ride the trend with a "Run into the Close" or seeking to capitalise on an overextended market with a "Revert to VWAP" strategy, trading the final hour requires sharp execution and discipline.
Even if you don’t trade the close directly, understanding how the market finishes the day can provide valuable insights for the next session. Watch how the price closes in relation to the day’s range, as this can set the tone for the following day’s market sentiment.
Disclaimer: This is for information and learning purposes only. The information provided does not constitute investment advice nor take into account the individual financial circumstances or objectives of any investor. Any information that may be provided relating to past performance is not a reliable indicator of future results or performance. Social media channels are not relevant for UK residents.
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