Warrior Trading Blog

Best Time of Day to Buy Stocks

Best Time of Day to Buy Stocks

Best Time of Day to Buy Stocks – Overview of the trading day

In terms of trading, many people want to know: When is the best time of day to buy stocks?

Certain hours offer the maximum opportunity for trading during the day. Trading at those times can help traders capitalize on better than normal opportunity. To begin with, it is vital to know about the two most important trading sessions:

  • Morning session
  • Afternoon session

Morning Session

Usually, trading starts at 9:30 AM EST, and a substantial fraction of traders transact till 10:30 AM (which signifies the first hour of a trading day).

Helpful hint: In the morning, stock prices can be quite volatile. This is a great time to hunt for trading opportunities but make sure, since it’s more volatile, to be more on the defensive side!

Why the first hour?

Certain factors can help answer this question that can occur when considering first-hour trading:

  • More volume, which means more liquidity for you to get in and out of positions
  • Volatility is increased meaning more opportunities
  • More follow through on breakouts

 Afternoon Session

The volatility of the market begins to decrease at around 11 or 11:30 AM. During this session, the volume is also inclined to reduce. Therefore, when trading at this time, you do not maximize your returns and often price action can be very choppy.

As you can see in the above $10-minute chart of the SPY, the moring has more volume and more direction in the stock price and the same is true for the last hour. This isn’t always the case but it is more times than not. You’ll also notice in the middle that price action was more rotational as it drifted higher on lighter volume.

Other sessions

Besides the two sessions mentioned above, the following are also noteworthy:

The day’s end

Many position traders close their positions around 3-4 PM EST. During that time, volume in addition to volatility increase like at the onset of the trading day. At this period, there can be great opportunities, as well as big, speedy moves that can take place until 4 PM, which marks the end of a standard trading day.

Extended trading

It is essential to know that trading can happen between 4 and 8 PM, which is past the closing bell. After hours trading does have opportunities but it is not for the feint of heart. There is much less liquidity and volatility can be extreme. If you are looking to trade during this time it’s vital that you decrease your position size as well as use hard stops! In fact, many brokers require you to have stops in during this session.

Pre-market trading

You can also trade between 4-9:30 AM rather than waiting for the opening bell. The advantage of doing so is that in this session, a larger number of companies do not release details, for instance, reports of bad earnings during ordinary trading hours. This gives traders the opportunity to take advantage this volatility before the market opens.

Why the morning hours are the best

  • The day’s biggest trades often occur as soon as the opening bell when the interest of the investors is the greatest due to overnight news.
  • As a result of the volatility of the first hour, traders have the most opportunity.
  • The initial trends that highlight the most significant trades are provided in the morning.
  • Quick profits can be made by skilled traders who can identify suitable patterns.
  • The biggest moves within the shortest time are provided, and this is “an efficient combination.”

The last hour of trading

A majority of day traders also trade the last hour of the day, that is, 3 to 4 PM. This last hour of trading is the second most volatile hour of the day. Market closes at 4 PM; after which liquidity dries up in almost all ETFs and stocks, with an exemption of very active ones.

Also known as end-of-day trading, the last hour is popular for those who have difficulties trading during the day. Traders by this time, have a long break since the morning session making it possible for them to:

  • Regroup
  • Regain focus

When looking at common intraday stock market patterns, the last hour is similar to the first hour in that; it is full of sharp reversals and bigger moves. Closing auctions steer prices right at the end of regular trading, an aspect that can lead to big gains as traders hope that the momentum will spill over to the next trading day. Characteristics of the last hour are as follows:

  • Price action is more volatile
  • Uptick in volume

It is fundamental to highlight that throughout the year, volatility changes. Two productive periods for trading separated by a slow period of the trading decrease are characteristics of any calendar year. The information is handy when determining the best months to trade;

January through May (Winter-Spring)

  • These are the most profitable months for trading due to volatility
  • Traders get busy and are excited making earnings before the summer stagnation
  • In actual sense, this time of the year does not beat the autumn, but it means more opportunities for traders to make a profit

June through August (Summer)

  • These are the slowest months for traders
  • Market volatility stabilizes during the summer
  • This happens as most traders go on a well-deserved vacation during this time and make a comeback in September
  • Analysts do not recommend trading at this time as volumes are smaller than normal
  • Also, as much as there are occasional moves, they are associated with high risks and are quite unpredictable
  • The best strategy during summer is to try mini-trends or deal with smaller trading ranges
  • Summertime trading blues end on the first Monday of September marking the up rise of both seasonal and weekly volatility

September to mid-December (Autumn)

  • These are active and highly volatile months
  • As traders resume trading activities after summer, it is natural for a boom to occur
  • Hedge Funds make a comeback as activities in other businesses resume
  • Volatility fluctuations slowdown from mid-December to end December

Why the divide?

Any vacation period signifies a dry up of the trading volume, and the subsequent months symbolize a refreshing return to trading.

Final Thoughts

The above suggests the best time of day to buy stocks based on time of day and time of year. Anomalies and exceptions abound and are dependent on changing market conditions and news events. The closest thing to a fast and hard rule is that the last and first hour of a trading day is the busiest, providing the most opportunities.

Markets experience lower trading volumes because vacation season and key festivities approaches. Such days are prone to abrupt fluctuations; for this reason, analysts recommend slowing your trading down during this time.