Have you ever wondered why there is a huge volume bar at the end of each trading day? This spiked volume bar can be noticed on an intra-day chart for any stock or ETF. So, what is it?
Let me start by saying Kudos! You have a good observation. Any successful trader needs that.
It’s worth noting that this happens with all the major stocks and ETFs. There are a bunch of factors that make up that final bar. Here are the top few:
Market-on-Close (MOC) orders get executed
Day traders don’t want to hold their positions overnight. So, they enter MOC orders which get automatically executed at the end of the session.
VWAP orders get filled at the end with minimal impact on the price
Large investors (include Hedge Funds and Institutional Investors) can trade shares at Volume Weighted Average Prices which doesn’t impact the overall price of any security. These trades occur at the end of the trading day, right before the close, and are reflected in the final bar of the day.
You can learn more about VWAP prices and methodology here.
Off-exchange orders get lumped together and get reported. This happens throughout the day as well
The spiked volume bar right before the close is also contributed to by any orders which are fulfilled outside the online exchange. These transactions are added to the online data by the brokerage to reflect a truer picture. These trades are executed at pre-determined prices and do not impact retail investors.
Index Fund Trading
Index funds make their closing trades towards the close of the day. As these funds are trying to mimic the performance of various indices, they buy and sell securities at the opening or closing of the market. This time-based action contributes to high volume during these times of the session.
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