This question comes up pretty often: “Hey Tim, what are the top times to trade?” or “When do you like to trade?”
If you know much about me, then you should know the answer. My students know the answer.
They get a lot of strong suggestions about the best times to trade.
One thing I want to make clear: It’s not only about the time of day.
Yes, there are two periods during the day when I make most of my trades. But there are exceptions. I sometimes open or close positions at different times.
Why would I make an exception? Read this entire issue and it will be clear.
1. Power Hours
A lot of people talk about the stock market power hour. Technically, it’s 3–4 p.m. Eastern, which is the last hour of regular market trading. This is definitely a time when a lot of big moves happen.
I believe there are two power hours in a trading day. I’m different than a lot of people on this. I say the first hour of the day from 9:30–10:30 a.m. Eastern is very powerful. And the last hour of the day is powerful.
Here’s what you can learn from this…
A lot of people don’t have time to trade all the time. So, figuring out the best times to trade is even harder. Many of you won’t be ready to trade full-time. You might prefer to trade part-time instead of full-time.
If you can focus on these two hours, the power hours, that’s when the vast majority of volatility happens … and it’s when you might see the majority of opportunities.
2. Morning Power Hour
In the morning you get a lot of big moves such as morning spikes and morning panics. Obviously, sometimes a stock doesn’t do anything — nothing is happening.
Those aren’t the plays I’m looking for.
I keep an eye out for morning spikes and morning panics. I research and set up my watchlist every day. Some of the stocks I watch do what I expect, others don’t. No big deal. If I’ve done my research and set up my watchlist, then I’ve prepared.
After that, I wait for the stock to prove itself. My thesis is either confirmed or denied by the stock.
Morning Spike
These are the signs I search for to add a stock to my watchlist for morning spike consideration.
- Stock closes strong the previous day.
- Stock is hitting new highs on strong volume near the end of previous day.
- The company reported good earnings or another strong catalyst.
(Note: These indicators do not guarantee a morning spike will happen. They are common when a morning spike does happen. Sometimes morning spikes happen for no apparent reason.)
Let’s say a stock finishes strong, it’s in a hot sector, and it’s breaking out on strong volume. It might have legs going into the next day. It might have the momentum for a morning spike.
Morning Panics
What creates a morning panic?
Often it’s when the stock finishes the previous day on a low. Let’s say the stock has had 4 or 5 green days in a row. Then it has a red day. Sometimes slower traders who didn’t recognize the momentum shift the day before, all sell at market open.
This creates a panic. Then you get electronic stop losses kicking in and it feeds the panic.
This creates a couple of different opportunities. The first is overnight short selling (NOT recommended for beginners or small accounts). The other is dip-buying morning panics — which is, at the time of writing, my favorite pattern.
Afternoon Power Hour
The afternoon power hour is similar to the morning power hour. There’s an increase in trading volume and volatility. This translates to bigger moves. One caveat: sometimes this starts a little earlier, say, 2:30ish p.m. Eastern. It’s not an exact science.
Here’s an example of how I like to work during the afternoon power hour…
I like buying stocks that are close to hitting new highs. Maybe a stock is taking out day highs (high of day or HOD) around 2:30–3 p.m. Eastern. This scenario gives me the opportunity to sell again before the market closes.
I don’t have to hold it overnight. If I make 5% to 15% on my money there’s no reason to hold the stock longer. And I have the option to hold all or part of my position overnight if it looks good.
I may sell half my position into the close because it’s closing nicely but hasn’t hit all my goals. This takes some of the risk off the table. The other half I leave, ideally for a morning spike or gap up the next day.
Fridays are a little different. The last hour of trading on Friday is also the last trading hour of the week.
Sometimes you see huge moves up or down as people don’t want to be stuck in plays over the weekend.
One thing I hope you take away from this issue: I want you to start thinking about which stocks have legs — up or down.
I’m not finished yet…
There are some more things you should consider before you choose your trade time. But let’s take a little breather and reconvene tomorrow.
We’ll take a look at patterns and green days — and other things you should consider when you pick your trade time.
Hang tight.