Every trader wants to know when the best time to buy and sell stocks is. Although there is no such time, there are the most favorable periods that you can use to enter the market. Read on to learn them.
The best time of the day
Maybe it’s not possible to name the best time of the day to buy stocks, but it’s possible to list the riskiest periods of the day when you should avoid equity purchases. The stock market is the most volatile in the morning because market participants will evaluate the events that occurred after the previous closing bell. Therefore, it’s hard to determine a fair stock price.
The closing bell is used on some stock exchanges to announce the end of the trading day. The NYSE is the most popular example. Since 1903, the stock exchange has used electrical bells for each of the four trading areas, but they are operated synchronously.
The period from the opening of the trading session (9:15 am in India / 9:30 am in New York) to 10:30 am experiences the biggest price movements in the shortest amount of time. Remember about the time zone. If you trade on any of the Indian stock exchanges, you should consider India Standard Time. If you want to trade on the largest American marketplaces, you should remember that both the NYSE and Nasdaq open according to Eastern Standard Time.
The middle of the day is the calmest period. After the market reacts to the news of the previous day, it waits for further news. In the middle of the day, the stock price is supposed to have a fair value, as news releases have already been priced in.
The price during the last hour of the trading session becomes highly volatile again. For the largest American stock exchanges, the closing bell rings at 4 pm EST, while the Indian stock market closes at 3:30 pm IST. You should avoid buying and selling shares during the last trading hour.
The best day of the week
There is no best day of the week to buy and sell shares. It’s believed that on Monday, the stock market drops because of the weekend effect — events that happened over the weekend are believed to be bad and negatively affect the stock price. Also, investors’ negative mood due to their return to work on Monday is expected to pull the stock market down.
Although it seems plausible, statistics say the effect of Monday is questionable. Check the average percentage change of the S&P 500 Index:
Conversely, Monday seems to be the most favorable day to buy stocks because you won’t be confused by the many events that will happen during the week. However, it’s not the best day to sell equities, as they may decline due to the weekend events. Try to sell your shares on Friday.
It was discovered that the stock market conditions are especially good before long-term holidays because of generally positive feelings. The markets generally rise ahead of the holidays.
The best month
To see if the current month is a positive time to enter the stock market, check the diagram below.
These are the S&P 500 Index’s monthly average returns from 1950 to 2017.
The end of December is considered a good time to buy shares of small-cap and value stocks. This is because investors and traders get rid of the assets that have fallen in value to claim capital losses on tax returns. Moreover, they believe that the new year should begin with something new. Another reason is the “January effect” – investors return to the market and boost the stock prices. Small-cap and value shares rise the most.
September and October are traditionally down months (the conclusion is made based on drops that occurred during The Panic of 1907, The Great Depression of 1929, and Black Monday in 1987). The stock price is supposed to drop. You can use falls to buy shares on dips.
Best date of the month
In general, there isn’t any specific day of the month that would be perfect for buying stocks. You can trade whenever you want, and you can still see promising results. At the same time, traders noticed certain patterns that make specific days more convenient for trading.
At the turn of the month, stocks may rise. This is a tendency that may be linked to new regular flows of money that are directed toward mutual funds at the beginning of each month.
Some fund managers may also work to make their balance sheets look good whenever a quarter ends. They do this by purchasing well-performing stocks from that specific quarter. In the middle of the month, there is usually a drop in the prices of stocks.
Therefore, traders may look for specific dates during the month to make their trades. Many people will benefit from timing their stock purchases close to the middle of the month. So, between the 10th and the 15th, these trades can be extremely beneficial. Then, when it comes to selling stocks, the best day for doing so would be during the five days around the month’s turn.
Are there really best times to buy or sell stocks?
There are many days when you can buy or sell stocks for a profit. But over time, there were certain months or days when stocks had a better or worse performance. Some people have noticed that stocks tend to perform better during specific days of the month or specific times during the day.
Naturally, those who have noticed these patterns have begun to follow them whenever buying or selling stocks. Some traders decided to stay away from trading or limit it during times when it seemed unfavorable. So, they only trade when the odds are in their favor.
In theory, this is caused by certain market anomalies that have a negative impact on the markets. But according to some research, the anomalies came into the spotlight over the years, which led to trading becoming more automated. So, the anomalies have begun to disappear slowly but surely.
It’s best to keep in mind that usually, the best times or days to trade stocks are simple generalizations. While some aspects may influence market conditions, it’s best to analyze the market and make your own conclusions.
Is there a way to trade stocks over the weekend?
Trading over the weekend sounds convenient for many people, especially traders who do not have a lot of free time for trading during the week. Everyone knows that the markets close on Fridays. But is there a way to work around it and still make some trades during weekends?
Unfortunately, traders cannot buy stocks over the weekend. Major stock markets do not stay open during these days. On Friday afternoons, they close, and there is the possibility of trading after closing hours when extended after-hours trading is offered. Therefore, traders must limit themselves to trading during the week.
Is there a general rule for timing trades?
There aren’t any rules when it comes to trades, but the one thing closest to a rule is the fact that certain times of the day are busier than others. For example, the first and last hours of the day are considered the busiest for trading. This is why it is considered that they can offer the best opportunities for passionate traders.
Still, there are many traders who trade in the off times too, and still make a profit. It all varies from one individual to another and depends on their strategies.
Investors wonder if there are so many trading strategies, are there perfect intervals of the day, week, or month to enter the stock market? The answer is no because the financial market changes rapidly. You can apply the general rules mentioned above, but remember that the best time to purchase stocks is when you analyze the market properly, like what you do, and have enough funds to buy the stocks and cover losses (if they happen).