For as long as the stock market has existed, people have looked for trends that can help them maximize their investments while minimizing risk. One factor is the day of the week, while another is the time of day. The best time of the week to buy stocks is debatable and can often change based on who you ask.
Most, however, agree on the best time to buy stocks if you are going to invest on that day, no matter what. This article will provide a summary of what many feel is the ideal time. It will delve into market volatility, identify some of the worst times to trade, and when you may want to take it easy.
When Should Novice and Conservative Traders Focus?
For the average day, most new investors or investors looking to avoid losses should consider trading at two specific times.
Mid-Morning to Early Afternoon
When the opening market volatility has had a chance to settle down, it will be mid to late morning. This period coincides with when the market will be its most liquid. It also is the time that most investors will have had a chance to catch their breath and assess where they think their stock and the market overall are headed.
Once they reach that point, with a few notable exceptions, most of the volatility in the market will subside. All buying or selling will have occurred, and brokers, day traders, and investors will be absorbing whatever they have just done and how the market is performing following the news from the night before.
For the new investor, that lull is one of the best times to become active in the market. The driver, however, is not that things have calmed down. Waiting until stock prices have calmed is a strategy to help avoid jumping onto bad stocks and taking a loss. It is not a strategy for picking winning stocks and jumping onboard at the most optimal time.
That is an important concept to understand because when it comes to buying, the investor’s mindset determines their strategy. If, for example, you believe the market will continue to decline, you might want to continue avoiding loss. In contrast, if the market suddenly jumps, you might want to consider investing earlier than mid-morning.
Mid Afternoon, but After Lunch
Mid-afternoon is another time the market is very active but still maintains some stability. While a news event could throw that into chaos, generally, stocks have a short period of activity in the early afternoon. Then, things are calm until about an hour before closing. If you are new to the market or have a relatively conservative trading approach, this is the second time to become active.
The other reason this period is fairly quiet and well-suited for new and conservative investors is important news doesn’t usually get broken in mid-afternoon unless it is episodic. A bad economic report, for instance, will not be covered until later in the day if the morning news cycle passes. The exception to his rule is when a major event happens or if morning volatility spills over.
Your Goals Make a Big Difference
Why you are looking to invest, sell or get into the market has a lot to do with when the best time of day to trade is. If you are looking to maximize profits and have a high-risk tolerance, a volatile market is a good time to move.
However, if you are looking to avoid losses and risk, avoiding the “power hours,” when most money is made on the market but the risk is significant, is a good time to lay low.
The power hours are right after the market opens when stocks can be volatile, and right before closing, when investors can be optimistic or pessimistic, depending on:
- Overall market performance
- Any news that came out during the day
Before you decide when the best time of day is for you, you first must decide how aggressive an investor you are planning on being.
Market Volatility Drives Aggressive and Conservative Trading
Rather than determine the best time of day, it is first a good idea to understand the worst times to invest in stocks. Doing so gives you a solid footing to at least mitigate your potential exposure when investing.
With that in mind, you should avoid any time of predicted volatility. Volatility in the market can be experiential, such as Monday mornings, or episodic, such as when the market opens after a day of sustained, rapid, or monumental declines. These times are more volatile than others because an unstable market environment tends to be contagious and builds momentum before it dies.
For example, if the stock market is taking a beating because of bad economic news, investors will likely continue to sell or tell investment advisors to do so even after the market is closed. In that situation, the goal is to get out of a stock as quickly as possible the moment the market is open again.
That creates an environment that can influence overseas markets, which can, in turn, make the original stock fall even further. The sagging foreign market, conversely, has a negative response that influences the news and investors in the original market. When the market opens up, stocks tend to get sold rapidly as opportunists swoop in and buy them low.
When Are Those Volatile Times of Day?
There are a few times that you can rest assured the market is best left alone, especially if you are a new investor:
The Opening of the Market
Investors looking to dump stock make any market opening volatile. Even when the market is healthy, there are still a lot of investors that will sell for a variety of reasons:
- Want to take profits off their stocks
- Have a tip that makes selling sensible
- Bad economic news came out after the market had closed
- An incident caused a particular stock to drop in value as a reaction
- No reason; the investor just wanted out
Avoiding the market opening for a few hours afterward is a smart strategy to follow, even if you are a seasoned investor. You do not know what is happening in everyone’s head, and buying at the opening bell might mean you bought on the crest as a stock starts to decline. Many day traders wait to make any moves until after 11:30 a.m.
After a Bad Weekend
When the market is in freefall on Friday, you can assume it will continue on Monday morning as investors try to cut losses. Loss cutting at the start of the week will happen if whatever influenced the market on Friday was discussed all weekend by the news media. That concept applies to any other day but is most evident on Monday mornings.
After Bad News Breaks
Certain events wipe out what is supposed to happen on the market, no matter how strong or weak the market is at any particular point. When the jobs report comes out is one instance, or when a major company revises its profit estimates. The key factors that shape whether an event will most likely influence a market are as follows:
- Affects the entire economic outlook
- Impacts a particular industry or a specific company
- Whether there is a political solution that is likely to happen
- If a prominent company figure is positively or negatively affected
For obvious reasons, each can drive investors’ collective thinking. News that unemployment is unexpectedly high, for example, is a possible indicator of an economy in trouble or not yet in recovery, which can prompt investors to sell.
Before the market shuts down for the night, many investors and brokers look to shed stocks. Just before closing can be a great time to find some bargains, but it can also be unpredictable. You could think you bought a stock that had hit bottom, but it might still have a long way to go before it gets there. In that case, you would lose your investment.
Newbies should avoid the closing hour until they know how the market behaves and can read basic trends in trading. Those skills come from experience.
Should Aggressive Investors Care?
If your trading strategy is aggressive or hyper-aggressive, you may want to consider trading during those volatile times. There is a lot of money to be made when and before the market closes. That is why they are called the morning and afternoon power hours. Those two times are when most money is made on the market.
The information above establishes that there are two periods to jump on if you are aggressive and two different periods during the day to become active if you are employing a conservative approach. Breaking news can always send a market one way or another and turn those safe times into hazards.
Apart from the general rules concerning volatility, the best advice is to pay attention throughout the day while applying a stock-buying strategy that works for you.