When trading in the U.S. stock market, you may notice some common patterns based on the time of day that occur most often. These patterns, or trends, happen frequently enough for professional day traders to rely on them in their trading.
Other Common Trends
9:30 AM: The stock market opens, and an initial push occurs in one direction. (It may take a few minutes to get started.)
9:45 AM: The initial push often sees a significant reversal or pullback. This is usually a short-term shift, after which the original trend reaffirms itself.
10:00 AM: If the trend that started at 9:30 AM is still ongoing, it is likely to be challenged around this time. This is usually another time when a significant reversal or pullback occurs.
11:15-11:30 AM: The market heads towards the lunch hour, while London prepares to close. This is the time when volatility is typically reduced for a few hours, but the daily high or low is often tested around this time. European traders usually close positions or accumulate a position before the end of the day. Whether the high or low is tested or not, the market tends to “drift” for the next hour or so.
11:45 AM – 1:30 PM: This is lunchtime in New York, along with a slight time space. This is usually the quietest time of the day, and day traders often prefer to avoid it.
1:30-2:00 PM: If the lunch hour is quiet, a break of the range set during lunch is expected. The market often tries to move in the direction it was trading before the quiet lunch period.
2:00-2:45 PM: As closing time approaches, many traders trade in the direction, hoping it will continue in that trend until the close. This may happen, but expect some sharp reversals around this time, as many traders are quicker to take profits or move their stop losses to the current price.
3:00 and 3:30 PM: These are the “big shake” points, where many traders will be forced to exit their positions. If a reversal of the previous trend happens around this time, the price is likely to move sharply in the opposite direction. Even if the previous trend continues during these periods, expect some fast and significant moves against the trend.
As a day trader, it’s best to be quick-witted and not commit to a single position or direction. It can be very difficult to hold a trade for too long between 3 PM and the close.
The last hour of trading is the second most volatile hour of the trading day. Many day traders only trade during the first hour and the last hour of the trading day.
3:58-4 PM: The market closes at 4 PM. After that, liquidity in all stocks and exchange-traded funds decreases, except for very active stocks. It is customary to close all positions a minute or more before the closing bell unless you have orders placed to close your position in the closing auction or “cross.”
Note: All times mentioned here are in Eastern Standard Time. Except for opening and closing times (9:30 AM and 4 PM), the mentioned times are approximate.
Considerations
Major news events may affect these trends, leading to significant reversals or surges or other unusual movements during lunch hour or other times.
The provided times are only estimates and can thus be incorporated into a trading strategy if sufficiently tested. Trends should not be used alone as a strategy or trading signal.
Questions
Frequently Asked Questions (FAQs)
What is the best time of day to buy stocks?
If you believe the stock will rise throughout the day, the best time to buy it would be at the first reversal of the day. This reversal could be immediate at market open, or it could be a smoother reversal after an initial push. When the reversal occurs, this is the perfect time to buy for an upward day trade, although timing this accurately can be difficult.
What pre-market conditions indicate that a stock will rise during the day?
A trader may look for bullish signs in pre-market, but the signs they look for will depend on their strategy. If they rely on buying exaggerated pullbacks, for example, they will monitor heavy selling in pre-market. Conversely, a momentum trader will do the exact opposite and look for stocks expected to rise at the open.
What are seasonal patterns in stock markets?
Seasonal patterns may refer to patterns in specific stocks or general patterns in the market. Some companies may experience seasonal cycles, such as a cruise company selling more tickets during holidays, and their stocks may reflect that. Other traders monitor general seasonal patterns, such as the notion that traders should “sell in May and go away” until November.
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Sources:
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TradingHours.com. “LSE Trading Hours.”
NYSE. “Holidays & Trading Hours.”
Source: https://www.thebalancemoney.com/common-intra-day-stock-market-patterns-1031456
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