When looking to trade the market, most people don’t realize there is a difference in the time of day that definitely affects how stocks act. Not using this information makes it harder to make money through any type of trading, short term, long term, or even day trading. In addition to time of day, whatever method you employ, whether a trading system or just some tools, will also have certain times of the day where they tend to work better or worse. This type of action can only be discovered by tracking the signals or stock picks that are flagged, then seeing over time when the best use is.
The first 30 minutes is usually the craziest time. Stocks can have bigger swings up and down as there are not a lot of established orders from bigger funds in the market yet. It is a great time for daytrading and short term trading of stocks because of the increased volatility, but with that also comes increased risk of a stopout. Also there really is not much in terms of support and resistance created yet, but you can look at the last hour of the prior day for clues. Sometimes using a stock trading system can be of assistance when the market has increased volatility, assuming you have thoroughly researched and tracked the trading ideas it might send out.
From 10am EST until about 11:30-45 EST is prime time for trends to develop. These times are not exact, and shift around some but in general this is when a decent, continuing trend will try to develop. Also the volatility calms down alot, making it easier to put in a stop that is closer to the actual price when day trading. For longer term investors, this time is not ideal to enter most of the time, its simply too early in the day. The exception would be an entrance based off of daily breakout of resistance or support, or some key fundimental data that is just starting to push the stock. An entry when this type of thing happens is ok during this time of the day.
From about 11:45 until 1:15pm EST stuff usually slows down alot, and fake moves can happen. Fake moves refer to price action where something is acting weak then moves up out of nowhere and vice versa - making it easy to get stopped out. Most of this is just due to decreased volume and liquidity. Program trading bots and algorithm day trading bots love this period of time in the market. Every move that gets started seems to fade, or they can create the appearance of X happening, suck some traders in, and then do the opposite. This also makes it very difficult for most traders, as it will seem just when a move gets started, it abruptly ends, especially hard for those learning to trade. Of course there are enough names that do really move and keep going, but these are impossible for the most part to sort out from the ones that stop and reverse until the move is too late.
Stuff will generally pick up after 1:15 for about 45 min or so, then slow down again near 2pm EST. Often, 2:30pm EST is a key time to watch - reversals often start here. Countless times the market will put in a top or bottom near this time and then reverse into the close. Does it occur all the time? no. But it does happen enough of the time its well worth paying attention to. Volume should pick up after about 3-315 EST into the close, whether there is a 2:30 reversal or not. This is again a good time for day trading, AND its good for watching for longer term additions as you can see if the stock is holding gains, pushed above key resistance, has made a major reversal on daily chart etc.
One thing to note here, is in recent times they have shifted the 2:30pm stuff to the last 45 minutes of the day (meaning instead of 2:30pm est, they do this at 3-3:15 est).Success comes from noticing patterns of behavior and anticipating what might or should happen. A big part of trading is not just knowing what trade setups happen in real time, its anticipating patterns of behavior.
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