In my Investing for Beginners series, so far we have discussed the best strategies to trade, what mistakes to avoid, tips for success and various important basics to succeed when day trading, but is there a best time of the day to trade? A good time to apply all this wisdom you are learning? Let us answer that question today.
A lot of day traders forget that day trading means trading during a specific time period and not incessantly.
They buy and sell stocks too often and end up...
…exhausting themselves and their resources. In today’s article we will discuss the importance of certain hours of trading. There are certain hours that provide way more opportunities than the rest of the day. When you do not focus on certain hours and continue trading all day long, you run into the problem of overtrading. Overtrading is definitely something you will want to avoid.
It leads to burnout and even lead to making unpredictable trades based on emotion, which could wipe your account out. Most people are unaware of what times are the best to trade. Buying and selling without paying attention to time of the day will likely push you into troubled waters because you aren’t being disciplined enough. There are specific times of the day that are better than the rest for trading.
Best time of day to trade?
To understand what time of the day is the best for trading, we must first take a look at three important time slots. The Main Time Slots (Time slots are referenced in Eastern Standard Time as that is the standard time of reference used for the stock market).
4:00 a.m. - 9:30 a.m.
Premarket trading happens between 4:00 a.m. and 9:30 a.m.
While it is possible for an amateur trader to trade stocks during this time period, it isn’t recommended. This time frame is usually reserved for professional traders who work at broker dealers, investment funds and hedge funds. Some amateur traders do trade during these hours, but it is recommended to stay outside of this trading time period because you could be wiped out by the professionals. Trading during this time period requires mastery of the stock trading.
9:30 a.m. - 11:00 a.m.
This time period is when stocks first start trading for the day.
Both the Nasdaq and the NYSE open their trading floors at 9:30 a.m. 9:30 a.m to 11:00 a.m. is a good time to trade, but I suggest waiting until at least 9:45 a.m. or 10:00 a.m. to start making your trades. We will take a look at the reasons for this, shortly. On an average, sticking to the opening hours of the day is a good strategy as this is when stocks make the best moves for traders to capitalize on. And it will also keep you disciplined as you will trade only within this recommended time rather than haphazardly trading all day with no focus.
In a nutshell, the morning hours are better for trading because…
- More volatility leading to more opportunities
- Increased volume leading to more chances to get in and out of positions
- More discipline because you’re completing your trading in the morning rather than dragging it all day
11:00 a.m. - 2:00 p.m.
Midday trading happens between 11:00 a.m. and 2:00 p.m.
Usually, midday trades aren’t as profitable as morning trades. While it is possible to open up a position during these hours, it isn’t really recommended because trades made during these hours tend to be less profitable because the volatility in the morning tends to trend lower as the day progresses. On most days, I finish my trading for the day before this time period begins. The biggest concern for trading during these hours is the lack of volume of trades, which makes it harder to earn big profits during these hours.
Finding a good stock during the midday hours is like trying to find a needle in a haystack. The market volatility is so low that it isn’t worth your time to make a trade. Most traders who stick around to these hours often find themselves overtrading and just obsessing over making trades, as opposed to actually earning profits.
2:00 p.m. - 4:00 p.m.
Trades made between 2:00 p.m and 4:00 p.m. would be considered late day trades.
Late day trades do tend to be profitable. If you’re trading throughout the day, it may be best to stick around when the market is open, move away from the computer to do other activities through midday trading, then come back to the late day portion of the market to see what other activity is happening. Taking a break will prevent you from overtrading and give you a fresh look at the market to see what opportunities arise.
This time frame is considered a prime time for trading. A lot of traders tend to trade during the last hour the market is open, in between 3:00 p.m. to 4:00 p.m. At 4:00 p.m. the market closes for the day to the general public.
4:00 p.m. - 8:00 p.m.
After-hour trades that are made after the market is closed.
Just like how premarket trading happens before the market opens, after-hours market trades are made between 4:00 p.m to 8:00 p.m. It’s best to stay away from this time frame of trading until you become an experienced trader, or if you are working at an institution that specializes in day trading.
when To Trade?
Now that we understand how these three time periods function and which ones have opportunities, let’s see why there is a…
…“sweet spot” when it comes to choosing the right time. This is something I’ve arrived at after years of practice, mistakes and experience. As a beginner, it would have taken you lots of trial and error, mistakes and losses to understand this. So keep in mind that this is valuable information you must not ignore or forget.
The Perfect Sweet Spot
Most of my trades are placed between 10:30 a.m. to 10:45 a.m.
From my combined experience trading for seven years and earning over $9 million day trading while making a few costly mistakes in the process, I have come to find that the best trades I make are in between 10:30 a.m. to 10:45 a.m. Many beginners make the mistake of trying to place trades as soon as possible, immediately after the market opens. People are too eager to trade and don’t practice patience. This mistake even I made when I had started my career, as well. If you do not remain patient and disciplined, at the end of the day you will end up facing losses. If you trade in a rush, you will not really understand or comprehend the volatility or potential spike.
You must give yourself some time, after the market opens, to really get an understanding of the nature of the market and stocks on that day.
Trade After Market Opens
There are a few reasons why it is highly suggested that you wait for at least an hour after market opening, before you start trading.
Firstly, there needs to be sufficient enough volume that changes stock prices for maximum profit potential. For instance, early during the day, when the market has just opened up, there isn’t that much volume at least before 9:30 a.m. (unless you are trading a highly volatile stock that is being covered frequently in the news). At this point in time, it makes it nearly impossible for me to quickly estimate how much volume the stock is going to trade at throughout the day because I only have that small time period for reference. I tend to wait till at least 10:30 a.m. before I begin.
Trades are made based on the movement of the charts, flow and other data points. There are a few reasons why it is highly suggested that you wait for at least an hour after market opening, before you start trading. As a beginner, you must completely avoid the time around day opening to avoid any losses. You must wait between 30 to 45 minutes at the minimum after day opening, before you start trading. Keep this time as your observational time, where you study how the market is behaving on that morning. Most experienced traders like me generally stop trading at 11:30 a.m. because after that, volatility and volume start to reduce significantly. Moreover, having specific times of the day to trade ensures I don’t trade all day long incessantly.