Best Times to Trade!

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Best Time(s) of Day, Week & Month to Trade Stocks

Unlike traditional investing, trading has a short-term focus. The trader buys a stock not to hold for gradual appreciation, but for a quick turnaround, often within a pre-determined time period: a few days, a week, month or quarter. And of course, day trading, as the name implies, has the shortest time frame of all. The analysis may be broken down to days, hours and even minutes, and the time of day in which a trade is made can be an important factor to consider.

Is there a best day of the week to buy stocks? Or the best day to sell stock? Does a best time of year to buy stocks exist? How about a best month to buy stocks, or to unload them? In this article, we’ll show you how to time trading decisions according to daily, weekly and monthly trends.

Key Takeaways

  • The analysis may be broken down to days, hours and even minutes, and the time of day in which a trade is made can be an important factor to consider.
  • The middle of the day tends to be the calmest and stable period of most trading days.
  • In the last hours of the trading day, volatility and volume increase again.
  • There are some who believe that certain days offer systematically better returns than others, but over the long run, there is very little evidence for such a market-wide effect.

Best Times of Day to Buy Stocks (or Sell Them)

First thing in the morning, market volumes and prices can go wild. The opening hours represent the window in which the market factors in all of the news releases since the previous closing bell, which contributes to price volatility. A skilled trader may be able to recognize the appropriate patterns and make a quick profit, but a less skilled trader could suffer serious losses as a result. So if you’re a novice, you may want to avoid trading during these volatile hours—or at least, within the first hour.

However, for seasoned day traders, that first 15 minutes following the opening bell is prime time, usually offering some of the biggest trades of the day on the initial trends. The whole 9:30–10:30 a.m. ET period is often one of the best hours of the day for day trading, offering the biggest moves in the shortest amount of time—an efficient combination. Extend it out to 11:30 a.m. if you want another hour of trading. A lot of professional day traders stop trading around then, as that is when volatility and volume tend to taper off. Once that happens, trades take longer and moves are smaller with less volume.

If day trading index futures such as S&P 500 E-Minis, or an actively traded index ETF such as the S&P 500 SPDR, you can begin trading as early as 8:30 a.m. (pre-market) and then begin tapering off around 10:30 a.m.   As with stocks, trading can continue up to 11:30 a.m., but only if the market is still providing opportunities.

The middle of the day tends to be the calmest and stable period of most trading days. No, it’s not that traders are on lunch break. It’s that this is the time of day when people are waiting for further news to be announced. Because most of the day’s news releases have already been factored into stock prices, many are watching to see where the market may be heading for the remainder of the day. Because prices are relatively stable during this period, it’s a good time for a beginner to place trades, as the action is slower and the returns might be more predictable.

In the last hours of the trading day, volatility and volume increase again. In fact, common intra-day stock market patterns show the last hour can be like the first: sharp reversals and big moves, especially in the last several minutes of trading. From 3:00 to 4:00 p.m., day traders are often trying to close out their positions, or they may be attempting to join a late-day rally in the hope that the momentum will carry forward into the next trading day.

Best Day of the Week to Buy Stock: Monday

There are some who believe that certain days offer systematically better returns than others, but over the long run, there is very little evidence for such a market-wide effect. Still, people believe that the first day of the work week is best. It’s called the Monday Effect. For decades, the stock market has had a tendency to drop on Mondays, on average. Some studies have attributed this to a significant amount of bad news that is often released over the weekend. Others point to investors’ gloomy mood at having to go back to work, which is especially evident during the early hours of Monday trading. Since the Monday Effect has been made public and information has diffused through the market about it, the impact has largely disappeared. The chart below shows that while Mondays on average have marked negative returns for the S&P 500 in 2020, the effect is very small. 

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Nevertheless, if you’re planning on buying stocks, perhaps you’re better off doing it on a Monday than any other day of the week, and potentially snapping up some bargains in the process.

Best Day of the Week to Sell Stock: Friday

If Monday may be the best day of the week to buy stocks, it follows that Friday is probably the best day to sell stock—before prices dip on Monday. If you’re interested in short selling, then Friday may be the best day to take a short position (because stocks tend to be priced higher on a Friday), and Monday would be the best day to cover your short. In the U.S., Fridays that are on the eve of three-day weekends tend to be especially good. Due to generally positive feelings prior to a long holiday weekend, the stock markets tend to rise ahead of these observed holidays.

What is the Best Month to Buy Stocks?

The markets tend to have strong returns around the turn of the year as well as during the summer months, while September is traditionally a down month. The average return in October is positive historically, despite the record drops of 19.7% and 21.5% in 1929 and 1987.   The chart below shows the monthly average returns for the S&P 500 over the period 1928 through 2020:

So, a trader may consider getting into the equity market in a big way in September, when prices tend to fall, to be ready for the October bump-up.

There’s also something called the January Effect. At the beginning of the New Year, investors return to equity markets with a vengeance, pushing up prices—especially of small-cap and value stocks, according to “Stocks for the Long Run: The Definitive Guide to Financial Market Returns and Long-Term Investment Strategies” by Jeremy J. Siegel. But again, as information about such potential anomalies makes their way through the market, the effects tend to disappear.

So, in terms of seasonality, the end of December has shown to be a good time to buy small caps or value stocks, to be poised for the rise early in the next month. There’s another advantage: many investors start to sell stocks en masse at year’s end, especially those that have declined in value, in order to claim capital losses on their tax returns. So again, the last trading days of the year can offer some bargains.

The Best Day of the Month to Invest

There is no one single day of every month that’s always ideal for buying or selling. However, there is a tendency for stocks to rise at the turn of a month. This tendency is mostly related to periodic new money flows directed toward mutual funds at the beginning of every month. In addition, fund managers attempt to make their balance sheets look pretty at the end of each quarter by buying stocks that have done well during that particular quarter. Stock prices tend to fall in the middle of the month.

So, a trader might benefit from timing stock buys near a month’s midpoint—the 10th to the 15th, for example. The best day to sell stocks would probably be within the five days around the turn of the month.

The Bottom Line

These suggestions as to 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 generalizations, of course. Exceptions and anomalies abound, depending on news events and changing market conditions. The closest thing to a hard and fast rule is that the first and last hour of a trading day is the busiest, offering the most opportunities—but even so, many traders are profitable in the off-times, as well. Still, academic evidence suggests that any patterns in market timing where one is able to consistently generate abnormal returns are generally short-lived, as these opportunities are quickly arbitraged away and markets become more efficient as traders and investors increasingly learn about the patterns. 

Best Times to Trade!

According to a recent report by the Wall Street Journal, more than 25 percent of all trading activity now takes place during the final half-hour of the 6.5-hour long trading session.

In 2020, more than 8 percent of trades in S&P 500 stocks happened at the close, according to data from Credit Suisse, with more than $10 billion worth of stocks changing hands at the final auction of the day.

This end-of-day surge in activity has several important implications for traders.

First of all, it can significantly increase liquidity, an important factor for stocks that suffer from low daily volumes. It can also, thankfully, lead to sharper swings thus increasing volatility for day traders.

So, what’s behind this trend and what are other pockets of opportunity are available for traders?

Rise of a $4 trillion market

Interestingly, the shift to trading at the close has coincided with another new trend–the proliferation of passive investments such as index funds. Index funds are a relatively new type of fund that aims to replicate stock indices such as S&P 500 or the Russell 2000–an approach that’s alien to traditional actively managed funds which nearly always attempt to beat the market.

Equity index funds have enjoyed exponential growth over the past decade, and now control nearly half of all passive investments. Index fund investments are a huge $4-trillion market.

Source: Business Insider

The main reason index funds have brought about a sharp increase in end-of-day trading is simple: These funds typically update their positions at the end of the day.

Index funds do not trade as frequently as active funds and when they do, they tend to do it near the market close because buying or selling stocks at their closing prices is a fairly reliable method of aligning their performance with that of indices they are trying to emulate.

The other reason is simply that it makes sense to trade when volumes are high.

Hedge funds typically make large volumes of trades at a single go, which can significantly move the price if only a few buyers or sellers are placing trades. It, therefore, makes sense for them to wait until other market participants are willing to play (i.e. at the end of the day). So this has become a self-reinforcing trend that is probably not going anywhere.

Trading and Non-trading Hours

The markets are full of idiosyncrasies, not least the rather bizarre finding that overnight is the time when big money—or ALL money–is made in the stock market. The difference between day returns and overnight returns is literally like, well … night and day.

Comparing stock market returns in the NYSE by looking at prices at the start of trading at 9.30 a.m. to market close at 4 p.m. as well as the reverse i.e. price returns from the close of market at 4 p.m. to the market opening at 9.30a.m. the following day tells it all. You can actually make a bundle by simply buying stocks just before market close, holding overnight and selling immediately after market open the next day. This is made possible by the fact that stock prices tend to be higher at market open than prices at the previous day’s close.

An investment company known as Bespoke Group arrived at this conclusion by looking at the returns by SPDR S&P 500 E.T.F since its inception 25 years ago. This ETF tracks the broad-market S&P 500 and is, therefore, a pretty good proxy for the entire stock market. Had you bought the SPY at the last second of each trading day and sold immediately at market open the following day since 1993, your cumulative gains would be 571%. If, on the other hand, you had taken the reverse route and bought the ETF immediately after market opening and sold just before market close, you would be down 4% over the same timeframe!

You can find the full report here, including hypotheses as to why this is the case.

Source: The New York Times

What’s even more striking is the fact that this trend holds true even when looking at much shorter timeframes. If you had bought the SPY just at market close every day and sold immediately after market open in the period Jan. 2020-Jan. 2020, you would be sitting on a cumulative gain of 13.4%, significantly better than the 9.2% gain you would otherwise have realized by trading during regular hours over the same period. Of course, a little bit of leverage would provide much more oomph to those profits.

Best times to trade

Day traders try to benefit from market volatility in both bull and bear markets. Here are a few tidbits on the best times to buy/sell stocks:

  1. Best time to buy or sell stocks–opening hours

The first hour of a day’s trading session tends to be highly volatile as the market tries to incorporate news since the last closing bell. For a seasoned trader, the first 15 minutes-1 hour of a trading session represents prime time to buy or sell stocks. Less-skilled traders, though, should avoid placing trades at this time.

2. Best day to buy stocks–Monday

The Monday Effect is a well-documented tendency for stocks to drop on Mondays. This is a good time to buy on the dip.

3. Best day to sell stocks–Friday

The opposite of the Monday Effect, Fridays are the best days to sell or open short positions. Fridays that fall on the eve of three-day weekends tend to be especially productive.

These are, of course, generalizations since exceptions and anomalies abound. The only par for the course is that the first and final hours of a trading session are almost always the busiest, and therefore tend to offer the most opportunities for day traders.

The Best Forex Trading Hours

The optimal time to trade the forex (foreign exchange) market is when it’s at its most active levels—that’s when trading spreads (the differences between bid prices and the ask prices) tend to narrow. In these situations, less money goes to the market makers facilitating currency trades, leaving more money for the traders to pocket personally.   

The 4 Major Forex Exchanges

The four major forex exchanges are located in London, New York, Sydney, and Tokyo.   Forex traders need to commit their hours to memory, with particular attention paid to the hours when two exchanges overlap. When more than one exchange is simultaneously open, this not only increases trading volume, it also adds volatility (the extent and rate at which equity or currency prices change). Both of these factors can benefit forex traders. 

This may seem paradoxical. After all, investors generally fear market volatility. In the forex game, however, greater volatility translates to greater payoff opportunities. 

Worldwide Forex Markets Hours

The forex has 15 independent worldwide exchanges, open weekly from Monday through Friday. Each exchange has unique trading hours, but from the average trader’s perspective, the four most important time windows are as follows (all times are shown in Eastern Standard Time):

  • London: 3 a.m. to 12 p.m. (noon)
  • New York: 8 a.m. to 5 p.m.
  • Sydney: 5 p.m. to 2 a.m. (midnight)
  • Tokyo: 7 p.m. to 4 a.m.

While each exchange functions independently, they all trade the same currencies.   Consequently, when two exchanges are open, the number of traders actively buying and selling a given currency dramatically increases.   The bids and asks in one forex market exchange immediately impact bids and asks on all other open exchanges, reducing market spreads and increasing volatility. This is certainly the case in the following windows:

  • 8 a.m. to noon, with both New York and London exchanges open
  • 7 p.m. to 2 a.m., with both Tokyo and Sydney exchanges open
  • 3 a.m. to 4 a.m., with both Tokyo and London exchanges open

The most favorable trading time is the 8 a.m. to noon overlap of New York and London exchanges. These two trading centers account for more than 50% of all forex trades. On the flipside, from 5 p.m. to 6 p.m., trading mostly happens in the Singapore and Sydney exchanges, where there is far less volume than during the London/New York window.

There can be exceptions, and the expected trading volume is based on the assumption that no major news developments come to light. Political or military crises that develop during otherwise slow trading hours could potentially spike volatility and trading volume, making it a favorable time to trade.

High-Volume Forex Trading Hours Don’t Always Translate to Profits

Forex traders should proceed with caution because currency trades often involve high leverage rates of 1000 to 1. While this ratio offers tantalizing profit opportunities, it comes with an investor’s risk of losing an entire investment in a single trade. A 2020 Citibank study found that just 30% of retail forex traders break even or better. Tellingly, 84% of those polled believe they can make money in the forex market.   The chief takeaway is that new forex investors should open accounts with firms that offer demo platforms, which let them make mock forex trades and tally imaginary gains and losses. Once investors learn the ropes and become seasoned enough, then they can confidently begin making real trades.

The Balance does not provide tax, investment, or financial services and advice. The information is being presented without consideration of the investment objectives, risk tolerance or financial circumstances of any specific investor and might not be suitable for all investors. Past performance is not indicative of future results. Investing involves risk including the possible loss of principal.

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