The Best Times to Day Trade
By: Walker England | December 19, 2019
Many traders start off focusing on stocks and ETFs (exchange traded funds). This is great because most aspiring traders may already have an idea of how these markets operate. Let’s face it, though, as much as we would like to, it’s just not possible for most of us to sit in front of our computer all day and trade. So, in the name of efficiency, when should an active trader be looking to day trade the market?
Trading Times and Market Volatility
One thing that ambitious day traders often forget is that stock market hours are limited and volatility can vary throughout the day. Regular trading hours for major U.S. stock market exchanges, including the New York Stock Exchange and the Nasdaq Stock Market, are 9:30 a.m. to 4 p.m. Eastern.
These preset time constraints give the average day trader just a 6 ½ hour window to get their orders in and out of the market. A trader’s first impulse may be to trade through the entire session, but seasoned traders know that day trading opportunities are typically most plentiful when markets are traditionally their most active.
When is the Best Time of Day to Buy Stocks?
Day traders need markets that move, and U.S. Stock markets are typically the most active at the open and close of each session. The open provides volatility due to exchanges processing any new news that may have filtered into the market overnight. This includes earnings reports, banking news, or any other top headlines that may alter the perception of stock valuation. Traders trading the open may find focused day trading opportunities for the first two hours of the session (from 9:30 to 11:30 a.m. Eastern).
Trading the final hour of the day is also a popular approach. While there typically isn’t much in the way of news and reports from 3:00-4:00 pm Eastern, many traders hop online to close out existing positions and lock in profit by the end of the day. With many Institutions, professional traders, and novices looking for one last trade, the final hour of the day can often see some of the day’s highest volume and volatility. This activity makes it a perfect environment for short term day traders to identify stocks and ETFs hitting critical pricing levels.
What Are the Risks?
Trading during volatile market hours does carry a degree of risk. Fast moving markets can quickly push prices towards a trader’s stop loss, just as quickly as it can move them towards a profit target. Traders looking for a quick pop may find trading the market open enticing, but a more conservative approach may be to set orders during calmer periods. Typically, stocks are the quietest during the middle of the trading day. This gives traders a great opportunity to log in and place a trade during their lunch break! Also, traders should consider the day of the week as well. Trading on a Monday or on a Friday is typically seen as the most volatile. Prices on Monday’s open may rapidly adjust to any news that has developed over the weekend. Friday trading may also be volatile as traders try to balance their positions before the weekend. This makes 11:30am – 3:00pm Eastern on Tuesday, Wednesday and Thursday great alternatives for the trader looking for a calmer trading climate.
What About Pre-Post Market Trading?
With the advent of modern computer trading, more and more traders are also wading into pre and post market sessions. Pre-market trading, if it is available through your broker, is accessible from 4am-9:30am Eastern. Post market trading availability opens up at 4pm and runs through 8pm Eastern. Traders may enjoy extended market hours if they want to immediately react to breaking news events. Pre and post market trading allows traders more flexibility in trading times, but market access during these periods does come with considerable risk. Trading after hours can needlessly expose traders to high spreads, extreme volatility and a bevy of institutional traders circling the market looking for opportunity.
How Many Trades Should be Placed Daily?
The raw number of trades taken will ultimately be left to each individual’s financial objectives and personality. One thing all traders should remember though, is that day trading does not denote high frequency trading. If you open and close just one trade in a session, for all conventional purposes you are a day trader! So, while some traders are more comfortable with placing just a few trades per day, others may want to trade more. Either strategy may be fine because placing quality trades is much more important than the quantity of trades being placed.
When it comes to day trading stocks and ETFs, day traders should also be aware of the standing FINRA (Financial Industry Regulatory Authority) pattern day trader rule. This rule defines a pattern day trader as any customer who executes four or more day trades within five business days1. If a trader meets this threshold, they then must currently maintain a minimum account balance of $25,000. Of course, if you have questions about this designation, always check with your broker or a licensed securities professional for more clarifying details.
Alternatives to Day Trading Stocks
It happens to the best of us; we want to day trade but often life gets in the way during active exchange hours. The good news is that even if you can’t trade stocks from 9:30 a.m. to 4:00 p.m. Eastern there are other opportunities available. Other asset classes have market availability virtually around the clock during weekdays. Two of the most attractive markets for near round the clock trading include Forex and Futures.
As the old saying goes, money never sleeps. This is true as Forex (Foreign Exchange) traders have access to markets virtually around the clock! Trading begins on Sunday night, and dealing runs around the clock until Friday night without a session break. Futures traders also enjoy a high degree of flexibility. Not only can you trade a diverse variety of contracts including financial and commodity futures, but trading also runs around the clock Sunday to Friday with minimal session breaks depending on the contract selected. So, keep these two asset classes in mind, they may provide day trading opportunities even when traditional markets are closed!
A Trader's Perspective
At the end of the day, traders need to keep a schedule that works for them. Access to a trading terminal (or even a mobile app) focusing on specific market times can help reduce the sheer number of hours spent investigating trading ideas. While it’s not always possible to watch the markets around the clock, with a multitude of assets and asset classes available, anyone with will and determination can become a day trader and active market participant.
Personally, I enjoy the early morning volatility found at the open for income based opportunities. If I am looking for longer term positions and immediate execution isn’t a concern, trading during the calmer times of day has its advantages!
About the Author
After leaving college, Walker went directly to work with one of the world’s largest Forex brokers. Here, he worked in a variety of capacities, including working as a trading instructor and a Forex research analyst. He has helped thousands of new traders learn about the Forex market, with his research and market analysis published and broadcast across the globe.
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