A question I often receive is: what is the best time of the day to trade?
Most of my trades occur in the first hour of the day.
Many of my best trades occur in the first 15 to 20 minutes of the day. I spend the rest of the day managing those positions.
Watch the video or read on below.
The market opens at 9:30 a.m. ET. This is where initial price discovery is occurring for the market. Typically at this time, markets are thinner, or less liquid, and that tends to mean trades at the beginning of the day are higher risk for higher reward.
There are also institutions coming in right off the open who are positioning themselves long or short based on new news or whatever happened with the market overnight and overseas.
So, the best time of day to trade, the highest probability time of day to trade, is going to be that first 30 minutes of the day.
10 – 11 a.m. ET can still be a decent time to trade, especially for stocks that are in play that day due to news, analyst upgrades, or other factors. There’s still a lot of institutional movement that’s occurring, and you can still have good trending stocks.
The third best time of the day to trade is the hour or so prior to the market close at 4:00 p.m. ET.
Institutions are coming back from lunch and adjusting positions, and we’re getting price movements into the close. We’re also getting market imbalance information that can affect the market.
The worst time of day to trade is the middle of the day.
If you’re taking a trade somewhere between 11 a.m. and 2:00 p.m. ET in the US equity market, you have a lower probability of success than if you were taking that same exact trade off the open.
In the middle of the day, the volume tends to be much lighter. It is not uncommon to see the market flat line and chop sideways during those hours.
Sometimes there can be a news event that occurs in the middle of the day which could put the entire market in play.
However, as a general rule, if you’re looking to take a trade around 12:00 p.m., think again, as you’re probably going to have a lower probability of success on that trade. It might not be the best time.
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– Derrick Oldensmith
Senior Trader and Managing Supervisor