There’s one question that has bothered many traders in the stock market over the years; “which is the best time to buy stocks during the day?” Is it during the opening hours, mid-day or just before the markets close?
We’ve got the answers.
Unlike popular belief that trading in stocks is all about buying shares at low prices and selling them when the price rises, timing is a crucial factor in this business.
When you master the times that offer the highest chances of making profits, you can be a highly successful day trader. No longer will you be glued to your computer for the entire day, but two or three hours may be enough to enable you to attain your targets.
In this article, we are going to analyze the times that would offer you the best opportunities to make a kill in the stock market.
What Causes the Fluctuation of Stock Prices?
There are events that have an impact on the market. These include natural disasters, major board decisions, false news, the release of the company’s financial performance, and so on.
Note that these factors only have a short-term impact, and so you should not rely on them too much. Instead, there are some patterns that you are more resourceful, and this is where we are going to start on the best times to buy stocks or not.
The Importance of time in purchasing stocks
Knowing the best period to trade in stocks has several benefits, and they include:
- It helps you develop the discipline required of a day trader
- It will offer you the best chances to make earnings
- You no longer have to trade for the entire day
- It enables you to maximize your efficiency as a trader
The Opening and Closing of the Stock Market
When we talk about a trading session, we are referring to the trading day that takes place between the opening and the closing bell. Note that this period does not include pre-market hours or the extended trading hours.
Now, we are going to see what happens during a standard trading session, and we are going to divide the day into Morning, Afternoon and End of the day.
Trading normally kicks off at 9:30 AM EST, and the first hour until 10:30 AM, is the period when most reading takes place.
There is a reason why the morning session is when the market volumes and stock prices are so volatile. After the closing bell, a lot of news may occur, and this could have an impact on the stock market.
As a new trader, you are advised against trading during the first hour of the trading session. This is because you have not yet learned the art of analyzing trends and patterns.
However, if you are an experienced trader, this period may be ideal for you to land some outstanding opportunities.
In the early minutes of the trading day, the market is probably adjusting to any news that may have broken out. We urge you to take extreme caution during this period as you try to take advantage of the news to make profits.
What you should do very early in the trading day is watch out for stocks that made moves in the pre-market period.
You may also target those that are the trending topic on social media or in the morning news.
Such stocks present the best opportunities to make money as they are the largest movers at the opening bell.
The afternoon session starts at around 11 and 11:30 AM, and this period is when the market volatility starts slacking off. On top of that, the volume is also likely to go down.
Therefore, you cannot maximize your returns when you trade at this time.
III) End of The Day
Many traders close their positions at the day’s end, which is around 3-4 PM EST. This period has a similarity to the morning session, whereby the volume and volatility are likely to be increasing.
In this session, great opportunities tend to present themselves, plus big and speedy moves are likely to occur as well. All these happen until 4 PM when a regular trading day ends.
Besides the above three periods of trading, other sessions may occur beyond the standard trading times. They are as follows:
Instead of waiting for the opening bell at 9.30 AM, you can opt to trade earlier between 4-9:30 AM. This is the pre-market session, and it has its advantages.
You see, many firms avoid releasing company information, such as bad company earnings, during regular trading hours.
So, you can take advantage of being the early bird by letting go of any stock of such a company that you may be holding.
When the rest of the market wakes up to declining stock prices, you will be at an advantageous position.
Heads up: Trade Ideas is a good stock screener for pre-market analysis, see its full review here.
This is the trading that may occur between 4 and 8 PM, which is after the closing bell. Just like pre-market trading, this period presents some fantastic opportunities for the traders. However, only the brave should take this route.
There are several reasons why experts strongly advise against after-hours trading, and we are going to mention them below briefly:
- The prices are very uncertain
- The session is going to be dominated by the best in the field
- There is little liquidity
- Extreme price volatility
- Seeing or acting on quotes is impossible
- Very large quote spreads
- Numerous computer delays
However, if you insist on trading during these times, there are several precautionary steps that you can take. For instance, we advise that you decrease your position, plus you should also use hard stops to avoid making huge losses.
A majority of the brokers insist that you have stops before taking part in extended trading.
Why are Morning Hours the Best for Trading?
There are a few reasons that show why morning hours present the best opportunities for traders.
- Investors tend to have the greatest interest in stocks at the opening bell, and this may be due to any overnight news that may have an impact on the prices
- Then, the first hour is characterized by a lot of volatility, and this presents great opportunities for the traders to take advantage of
- Various trends and patterns suggest that the biggest trades are often provided in the morning session
- The crafty traders can easily point out the best patterns that could bring about quick profits
- It is at this time that you can find the biggest moves within the shortest time span
What about the Last Hour?
We cannot dismiss the last hour of trading, which is between 3 and 4 PM. In terms of volatility, it ranks second only to the first hour of trading and many day traders trade during this period.
For those traders who do not have an easy time to trade during the day, end-of-day trading is very suitable for them.
After staying away from the market since the morning session, the traders can now regroup and regain focus to do what is required in the market.
The closing auctions at the end of a trading day tend to lead to sharp increases in stock prices. This often leads to significant gains, and traders cross their fingers for this momentum to spill into the next trading day.
So, we can say that in this last hour, you can expect more volatile price action in addition to a steep increase in volume.
The Best Time of the Week to Buy Stocks
Over time, it has become apparent that trading on certain days of the week presents better chances of attaining higher returns than others.
In this instance, we are going to talk about a theory known as ‘The Monday Effect’ or ‘The Weekend Effect.’
According to this theory, Mondays are the best trading days, and it implies that the market movements and returns of stocks on Monday have some similarity to those on the previous Friday.
On Mondays, the markets often drop to lower levels, and this is attributed to an accumulation of negative news over the weekend. So, as the markets open on Monday, there is a huge possibility of them being at lower levels than before.
And if you want to sell stocks, Friday should be your day to do so. As the week progresses, the market is likely to be on an upward trend, with Friday being the peak.
In general, short your stocks on Fridays and then cover back your positions on Monday.
The Ideal Day of The Month to Buy Stocks
If you are wondering when the best day to sell off your stocks is, we suggest you do so at mid-month, as this is when the financial instruments are lowest priced.
As the month comes to a close, the stocks tend to be on an upward tick, and we could attribute this to the cashflow from fund managers. So, you ought to purchase the stocks around the 10th to 15th of the month and then offload at the month’s end.
In this way, you would have taken advantage of the price fluctuations and cashed in on the momentum to make a gain.
The Recommended Time of The Year to Buy Stocks
It is worth noting that the volatility of the stock market varies a lot as the year progresses. There are two productive periods in a calendar year, between which lies a slow period where minimal trading takes place.
We have taken our time and broken down these trading periods in a year as follows:
1. January to May
This is the period between winter and spring, and due to the high volatility of the market, it is the most profitable time to trade.
Traders are busiest at this time, as the opportunities to make earnings are the greatest then. Additionally, the traders are active since they understand that the summer stagnation is on the way where everything slows down.
2. June to August
As you can tell, this is summertime, and these months signify the slowest months for the traders. It is at this time that the market volatility stabilizes since most traders would have headed for their summer break.
We advise that you do not trade during this period since the volumes are lower than usual. And even though there are occasional moves, they are normally linked with high risks and extreme unpredictability.
If you insist on trading during summertime, experts recommend that you adopt mini-trend strategies. Ideally, you should only deal with smaller trading ranges.
3. September to Mid-December
Autumn is when the traders are coming back from their summer vacations, and the period is characterized by extreme volatility and activity.
As the traders make a comeback to their activities, you can expect a market boom to happen.
Another thing worth noting is the comeback of hedge funds since a lot of other businesses are resuming at this time.
Then, there is another slowdown that occurs from mid-December to the end of December, probably due to Christmas break.
The Importance of Research
Before you decide to trade in a particular company’s stocks, be sure that you do sufficient independent research.
Scrutinize the financial statements, watch the news, and even subscribe to the analyst services that do a thorough analysis of various companies.
In this way, you can decide on the strategy to employ as well the best time to trade those particular stocks.
Best Time of the Day To Purchase Stocks: Summary
The bottom line is that if you invest smarter and you get the timing right, then you would significantly boost your chances of making great earnings from your investment.
Our article has revealed, in great detail, the best time of day, week, month and year to buy stocks. This information may already be on the fingertips of the veteran traders, and this implies that you are going to find a lot of competition during these times.
So, for the beginners, instead of competing with the pros in the early morning trading sessions, we advise that you trade at midday. The volatility at this time is lower, while you are likely to incur minimal losses in case you go astray somewhere during the trade.