What’s it like to time a trade just right?
Imagine a surfer, paddling out and waiting for just the right moment. A tasty wave comes along, and boom! The surfer quickly jumps on board and rides the wave to shore.
That’s kinda like timing a stock trade. You jump on board the stock and see where the ride takes you …
Want some pointers on how you can find the euphoria of catching the trade wave? This article is for you.
Today you’ll learn smart times to trade stocks, as well as a few tips and tricks to help you better time your trades. Let’s get to it!
Table of Contents
- 1 When’s the Right Time to Buy Stocks?
- 2 Our 5 Favorite Times to Buy Stocks
- 3 Take Advantage of StocksToTrade Features
When’s the Right Time to Buy Stocks?
Here’s the super short-and-sweet answer for the best time to buy stocks: It all depends on your trading timeframe and trading style.
- If you’re trading a longer-term, multi-month timeframe, historically certain months may produce better returns. There are also certain historical tendencies in the market that you may have heard of, such as the January Effect and the Santa Claus rally.
- Now, let’s say you’re a swing trader, meaning you hold stocks for anywhere from 2 to 20 days or so. You’re likely interested to know that there’s a tendency for stocks to drop on Mondays and form a swing low (and, depending on your strategy, a potential buying point).
- Finally, if you’re a day trader or at least a short-term swing trader, you definitely need to know that there are certain times of the day that can be better to buy stocks. Mainly, this is around the open and the close, as that’s where you can usually find the bulk of the daily trading volume.
But let’s be crystal clear on a final point here: There really isn’t a ‘best time’ to buy stocks. It’s really about timing …
Why Timing Matters When Buying Stocks
Before we go any further, let’s make sure you’re clear on why timing your stock trades is a key part of your trading strategy.
When you buy a stock, you want it to climb, right? You probably want it to start rising in price as soon as you buy it. No one likes losing trades or sitting in a stock that just doesn’t move.
So what does it mean to time a stock trade? When you do it well, it means you can enter the trade just as the overall market forces are about to flow in and start bidding up the stock. This could be due to a trade setup, news story, technical level, or many other factors.
Now, a quick note on a few sayings you may hear, like ‘nobody can time the market’ or ‘trying to time the market is a mistake’. Sounds bleak, right?
You tend to hear this sentiment from old-school, cardigan-wearing value-investor types. Not everyone agrees …
There are countless traders that find a way to jump into trades at the right moment.
So what’s with the old-timey naysayers? It boils down to their strategy. These value investors usually buy underpriced businesses, then sit on them for years. They simply don’t need to time the market.
What Is Stock Market Seasonality?
A lot of people believe that the stock market has its own seasons throughout the year.
We’re not talking about winter or summer here, but rather that the stock market performance can change throughout the year.
You often hear about it in the financial media — the Santa Claus rally, the January Effect, the Presidential Cycle, and so on. Maybe you’re familiar with the saying ‘sell in May and go away.’
These are all separate (and sometimes conflicting) beliefs that if you buy or sell at certain times of the year, you can beat the market’s performance.
But let’s cut to the chase. These beliefs in seasonality don’t stand up too well to rigorous statistical testing. Sure, some of these patterns can provide a tiny bit of percentage outperformance if you follow them, but it’s really not a solid framework to base trades on.
At StocksToTrade, we don’t pay much attention to seasonality and we advise you to do the same. Instead, follow chart patterns, news catalysts, and develop a trading strategy to start. Then make full use of a stock scanner. That’s a much easier way to trade.
What Is the Best Day to Buy Stocks?
You can run a massive statistical backtest of all the trading days over the past 100 years and probably find a day of the week that’s slightly better to buy stocks. But don’t bother — it’s pointless.
What you’ll find is that you might make 0.5% more per year if you purchase stocks on a certain weekday. What’s more, it wouldn’t really apply to trading individual stocks. It’s more in line with investing in the entire market.
The best setup can be a chart pattern, a news catalyst, or even heavy action on the Level 2 quotes. Don’t pay too much attention to what day it is when it happens, but definitely be ready for when your trade comes together.
Our 5 Favorite Times to Buy Stocks
Since you’re reading the StocksToTrade blog, you’re probably more interested in actively trading stocks than in holding a position for the next 20 years.
With that in mind, here’s a list of our five favorite times to buy stocks, based on the StocksToTrade market approach.
#1 The First Two Hours of Trading
There’s a clear reason behind this: Traders and investors chew and digest all of the previous session’s action as well as the latest news. They’re eager to jump into positions as soon as the market opens.
That’s why you often see a flood of activity when the market opens. It can be a great time of the day to find opportunities and potential trades.
#2 The Last Hour of Trading
The last hour of the trading day, aka ‘the close,’ can also mean another surge of trading volume and volatility in stock prices. Traders and investors may be eager to open or close trading positions before the market action stops for the evening.
The wave of eager buyers and sellers at the close can push prices around, and that can result in a trade setup that suits your strategy.
So, if you didn’t find any opportunities at the open, keep your eye on the market around the close. That movement just might help you meet your trading plan.
#3 The Pre-Market and After-Hours Sessions
Warning: Trading outside normal market hours can be risky!
Trading doesn’t only happen between the hours of 9:30 a.m. and 4 p.m. each day. The exchanges also open before and after the daily session, allowing traders who are desperate to open or close positions the chance to make trades.
Generally, you’ll find extremely low volume and very wide bid-and-ask spreads in these non-standard trading sessions. And it can be quite expensive when you don’t know what you’re doing.
Most of the volume happens during the day session, which can make it a safer and simpler time of day to trade. So until you feel more confident in the markets, it’s better to leave this strategy to advanced traders.
But skilled traders can sometimes be first to move on a stock with a sudden news catalyst or even take advantage of traders who are desperate to buy or sell and willing to pay for the privilege.
#4 Follow the Data
Let’s get a little more advanced with some DIY trading info …
Are you collecting and tracking your trading data? You might use a statistical backtest or a well-kept trading journal. Here’s something to add to that data: the timing of your trades.
If you find a better time to buy a particular stock, it’s smart to track that data.
We can give you lots of tips, such as watching for opportunities at the market open or close. But those are more general rules. While they can sometimes work overall, in certain situations, trading at other times may better suit your trading style.
Don’t think this needs to be a tedious process. A good stock screener can help you streamline your process and even allow you to paper trade for practice.
See what a state-of-the-art platform can do for you. You can grab a StocksToTrade 7-day trial for just $7!
#5 When You’re Confident in Your Trade
Last but not least, here’s one of the most important steps on the list.
A key factor in timing a stock trade is your confidence in the trade.
So how do find that confidence? That all depends on your trading strategy.
Maybe you see your favorite chart pattern, a breakout on heavy volume, an exciting news story, or maybe just an eager buyer on the Level 2 data.
Whatever it is, trading your setup is far more important than focusing too much on when you trade, such as what specific time or day you place trades.
Take Advantage of StocksToTrade Features
It’s not enough to just pick the right time of the day, week, or year to buy stocks.
If you want to be competitive in the modern stock market, you need the right arsenal of tools to help you find trading opportunities that fit your strategies.
That mindset is what led the StocksToTrade team to create and design the StocksToTrade platform. We built the trading platform of our dreams.
Our platform gives us everything we need for our trading day, all within just a few clicks. Our platform is for traders, designed by traders. Here are just a few features:
- Ultra-fast connections to the exchanges to allow for almost instant trade alerts.
- Easy-to-use scanning capabilities to help you locate the exact trade setups you’re looking for.
- The ability to build and maintain countless watchlist to track your favorite stocks and sectors.
- Scanning for news, SEC filings, and social media to help you spot what’s trending right now.
- Company profiles on every stock to aid you in rounding out your stock research.
- And so much more — there’s just no room to list all the features here!
Get a 7-day trial for just $7 and see why many of the world’s top traders turn to STT for their trading platform solutions.
We hope by now you have a solid understanding of the best times to trade stocks — according to your trading strategy.
As a general rule, look for trading volume. That may mean buying or selling at the session open or close, especially in smaller cap stocks.
Also, don’t pay much attention to what the financial media says about certain stockmarket tendencies. All too often, those TV talking heads aren’t even real traders.
Whatever you do, make sure you stick to trading stocks that show your trade setup. Trading a stock at the ‘best time’ of the day is only secondary.
Lastly, don’t head into the markets without a fully equipped arsenal of trading tools. If you can’t scan for stocks, view charts, and trade at a moment’s notice, you can miss your optimal trade setup.
Don’t miss out! Use the right tools every day. Grab a 7-day trial of StocksToTrade for just $7 to see what you’re missing out on.
What’s your favorite time to trade? Do you prefer trading at the market open or close? Leave a comment. We want to hear from you!