For day traders, a day’s or week’s worth of profits can come in a matter of minutes or even seconds. That’s why traders always want to be in on the action during the optimal trading times every day.
Without question, the best time for trading is the first and last half hour the market is open. Those two half hours of every day are packed with tradable action. Here’s a look at why.
The primary ingredient for successful trading is volatility. The market has to move for traders to make money. The S&P 500 is most volatile right after the market open and right before the market close. During these times, the spread between bid and ask prices is at its largest, leaving more of an opening for traders.
Many skilled traders stop trading at around 11:30 AM ETS when market volatility really starts to die down. They return for the last hour of trading when volatility picks up once again.
It’s understandable that the stock market would be volatile right after the market opens as it adjusts to any news that may have happened since the previous day’s close. This adjustment period offers traders a window of opportunity to capitalize on the momentum that certain stocks will have following news.
Traders can identify and target stocks that have made large premarket moves, stocks that are mentioned in that morning’s headlines or stocks that are trending on social media. These stocks are typically some of the largest movers when the market opens.
The uptick in volatility during the closing hour also makes sense. Traders who want to exit positions prior to the end of the day will be selling. Traders looking to take a long or short position in a stock ahead of an after-hours catalyst like an earnings report will also be trading in the last few minutes of the day.
In addition, stocks that have been big movers throughout the trading day often gain momentum right before the closing bell or reverse direction sharply due to profit-taking. Finally, portfolio rebalancing also typically takes place at the end of the day, although it is more prevalent at the end of the week, month or quarter than on a typical weekday.
Professional and institutional traders are well aware that the first and last half hours of the trading day are the best times to trade, so there are plenty of sharks in the water. These trading hours offer experienced traders the best opportunity to make money trading, but they can also be a dangerous time for inexperienced traders. Novice traders may want to consider starting off by trading in the middle of the day when there is less market volatility and mistakes and learning experiences can typically be made at a lower cost.
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