The Best Times of the Day to Buy and Sell Stocks
Sometimes less is more when it comes to day-trading. Devoting two to three hours a day is often better for most traders of stocks, stock index futures, and index-based exchange-traded funds (ETFs) than buying and selling the entire day, for a couple of reasons.
Specific hours provide the greatest opportunity for day-trading, so trading only during these hours can help you maximize your efficiency. Trading all day takes up more time than necessary for very little additional reward. In many cases, even professional day traders tend to lose money outside of these ideal trading hours.
Avoiding Mental Fatigue
Additionally, day-trading requires discipline and focus, both of which are like muscles. Overwork them and the muscles give out. Trading only two to three hours a day keeps you on your game, and it likely won't lead to the mental fatigue that can negatively affect your work. Trying to trade six or seven hours a day can drain you and make you more susceptible to mistakes.
Of course, everyone has different focus and discipline levels. Some traders might be able to buy and sell all day and do it well, but most do better by trading only during the few hours that are best for day-trading.
Trading at the Opening
Trading during the first one to two hours that the stock market is open on any day is all many traders need. The first hour tends to be the most volatile, providing the most opportunity. Although it sounds harsh, professional traders know that a lot of "dumb money" is flowing at this time.
Dumb money is the phenomenon of people making transactions based on what they read in the newspapers or saw on TV the night before. The information these people are acting upon is typically old news. Their trades can create sharp price movements in one direction. Then professional traders take advantage of the overly high or low price and push it back the other way.
New day traders are often told not to trade during the first 15 minutes of the day, and that might be good advice for very new traders, but the first 15 minutes typically offers the best opportunities for seasoned traders. This time period can provide the biggest trades of the day on the initial trends.
Ending by 11:30
Regular trading begins at 9:30 a.m. ET, so the hour ending at 10:30 a.m. ET is often the best trading time of the day. It offers the biggest moves in the shortest amount of time. If you want another hour of trading, you can extend your session to 11:30 a.m. ET.
A lot of professional day traders stop trading around 11:30 because that's when volatility and volume tend to taper off. Trades take longer, and moves are smaller on lower volume—not a good combination for day-trading.
If you're day-trading index futures such as the E-mini S&P 500 (ES) or an index-based ETF such as the SPDR S&P 500 (SPY), you can begin trading as early as 8:30 a.m. during premarket hours and begin tapering off at around 10:30 a.m. That provides a solid two hours of trading, usually with a lot of profit potential.
As with stocks, trading can continue up to 11:30 a.m. ET, but only if the market is still providing opportunities to capitalize on the trading strategies you're using.
The Last Hour
Many day-traders also trade the last hour of the day, from 3 to 4 p.m. ET. By that time, traders have had a long break since the morning session, allowing them to regroup and regain their focus.
The last hour can be a lot like the first when you're looking at common intraday stock market patterns. It's full of bigger moves and sharp reversals. Like the first hour, many amateur traders jump in during the last hour, buying or selling based on what has happened so far that day. Dumb money is once again floating around, although not as much as it was in the morning. It's ready to be scooped up by more experienced money managers and day traders.
The last several minutes of trading can be particularly active, with big moves on high volume.
The Best Days and Months
Keep the bigger picture in mind, too, beyond the hourly grind. Monday afternoon is usually a good time to buy because the market historically tends to drop at the beginning of the week, particularly around the middle of the month. Many experts recommend selling on Friday before that Monday dip occurs, particularly if that Friday is the first day of a new month or when it precedes a three-day weekend.
Likewise, prices tend to drop in September and then hike again a month later. October is generally positive overall, and prices often go up again in January, particularly for value and small-cap stocks.