What are the best times to trade stocks?
Unlike traditional investing, trading is focused on the short term. The trader buys a stock not for gradual appreciation, but for rapid recovery, often within a predetermined time frame, be it a few days, a week, a month or a quarter.
And of course, day trading, as the name suggests, has the shortest time frame of all. Analysis can be broken down into hours, minutes, and even seconds, and the time of day a transaction is made can be an important factor to consider.
Is there a better day of the week to buy stocks? Or the best day to sell stocks? Is there the best time of year to buy stocks? How about the best month to buy stocks, or to sell them? In this article, we’ll show you how to time trading decisions based on daily, weekly, and monthly trends.
Key points to remember
- Day trading, as the name suggests, has the shortest time frame with trades broken down into hours, minutes, and even seconds, and the time of day a trade is made can be an important factor to consider. account.
- The closest thing to a hard and fast rule is that the first and last hour of a trading day are the busiest, providing the most opportunity while the middle of the day tends to be the period. calmest and most stable of most trading days.
- Some traders believe that certain days consistently offer better returns than others, but over the long term, there is little evidence of such a market-wide effect.
Best times of day to buy or sell stocks
In the morning, the volumes and prices of the market can be unleashed. Opening hours are when the market takes into account all events and press releases since the previous closing bell, which contributes to price volatility. A skilled trader may be able to recognize the correct patterns and make a quick profit, but a less skilled trader could suffer serious losses as a result. So if you are new to it, you might want to avoid trading during those volatile hours, or at least, the first hour.
However, for seasoned day traders, the first 15 minutes after the opening bell are prime time, typically offering some of the day’s biggest trades on the initial trends.
The entire 9:30 am to 10:30 am ET period is often one of the best times of the day for day trading, delivering the biggest moves in the shortest possible time. Many professional day traders stop trading around 11:30 am, as that is when volatility and volume tend to decrease. Once this happens, trades take longer and the moves are smaller with less volume.
If day trading index futures such as the S&P 500 E-Minis, or an actively traded exchange traded index fund (ETF) such as the S&P 500 SPDR (SPY), you can start trading as early as 8:30 a.m. (pre-market) then start to decrease around 10:30 am As with stocks, trading can continue until 11:30 am, but only if the market still offers opportunities.
The middle of the day tends to be the calmest and most stable time of the trading day. Meanwhile, people are waiting for more news to be announced. Since most of the day’s press releases have already factored into stock prices, many are watching to see where the market might be heading for the rest of the day.
Since prices are relatively stable during this time, this is a good time for a beginner to place trades as the action is slower and returns can be more predictable.
In the last hours of the trading day, volatility and volume increase again. In fact, current intraday stock charts show that the last hour can be like the first: sharp reversals and big moves, especially in the last few minutes of trading. From 3:00 p.m. to 4:00 p.m., day traders often try to close their positions, or they may attempt to join an end-of-day rally in the hope that the momentum will continue until the next trading day.
Best day of the week to buy stocks: Monday
Some believe that certain days consistently offer better returns than others, but over the long term, there is very little evidence of such a market-wide effect.
Yet people believe the first day of the workweek is the best. This is called the Monday effect. Anecdotally, traders say the stock market tended to go down on Monday. Some people think this is because a significant amount of bad news is often released over the weekend. Others point to the gloomy mood of investors having to return to work, which is especially evident during the early hours of Monday’s trading session.
For some reason, the Monday effect has largely disappeared. The chart below shows that while Mondays on average marked negative returns for the S&P 500 in 2018, the effect is very small.
Nonetheless, if you are planning to buy stocks, you might be better off doing it on a Monday than any other day of the week, and potentially getting some good deals in the process.
Best day of the week to sell stocks: Friday
While Monday may be the best day of the week to buy stocks, Friday may be the best day to sell stocks, before prices fall on Monday. If you are interested in short selling, Friday may be the best day to take a short position (if stocks are more expensive on Friday), and Monday would be the best day to hedge your short sale.
In the United States, Fridays on the eve of three-day weekends tend to be particularly good. Due to generally positive feelings ahead of a long holiday weekend, stock markets tend to rise ahead of this observed holiday.
What is the best month to buy stocks?
The markets tend to have strong returns at the turn of the year as well as during the summer months. September is traditionally a month of decline. The average return in October is historically positive, despite record declines of 19.7% and 21.5% in 1929 and 1987. The chart below shows the average monthly returns of the S&P 500 over the period 1950 to 2017:
So a trader may consider jumping into the stock market massively in September, when prices are trending down, to be ready for the October rise.
There is also something called the January effect. At the start of the new year, investors are making a strong comeback in the stock markets, pushing up prices, especially of small-cap and value stocks, according to Long-Term Equities: The Definitive Guide to Financial Market Returns and Long-Term Investment Strategies by Jeremy J. Siegel. But again, as information about such potential anomalies circulates in the market, the effects tend to fade.
So in terms of seasonality, the end of December has turned out to be a good time to buy small caps or value stocks, in order to be ready for the upside early next month. There is another advantage: many investors are starting to sell stocks. en masse at the end of the year, especially those who have lost value, in order to claim capital losses on their tax returns.
Again, the last trading days of the year can offer some good deals, although historically a sell-off occurs in December – and with it a potential drop in the value of the investment for new investors – which is a factor to remember after a potentially significant period. January.
The best day of the month to invest
There isn’t a single day in every month that is always ideal for buying or selling. However, stocks tend to rise at the turn of the month. This trend is mainly related to the new periodic cash flows directed to mutual funds at the beginning of each month.
Additionally, fund managers try to make their balance sheets look good at the end of each quarter by buying stocks that have performed well in that particular quarter. Stock prices tend to fall in the middle of the month.
So a trader could benefit from synchronizing stock purchases around the middle of a month, from the 10th to the 15th, for example. The best day to sell stocks would probably be within five days around the turn of the month.
The bottom line
These suggestions regarding the best time of day to trade stocks, the best day of the week to buy or sell stocks, and the best month to buy or sell stocks are of course generalizations. Exceptions and anomalies abound, depending on current events and changing market conditions.
The closest thing to a hard rule is that the first and last hour of a trading day are the busiest, providing the most opportunities, but even so, many traders are also profitable during off-peak hours. .
Yet academic evidence suggests that any model of market timing where one is able to consistently generate abnormal returns is generally short-lived, as these opportunities are quickly arbitrated and markets become more efficient as traders and traders alike. investors are increasingly learning about models.