Knowing what time to buy and sell stocks can net you an extra return simply by taking advantage of volatility and liquidity. There are two time windows of every single trading day where you should be liquidating your positions to maximize your return.
Simply put, the absolute best time of day to buy and sell stocks to maximize profit is going to be 9:30-10:45 Am and 2:45-4:00 Pm. There are three reasons why these two time windows are when you should buy or sell a stock for profit. First, there are more accounts buying and selling. Second, during these two time windows the spread between the bid and ask decreases. Third, total market volatility increases between 9:30-10:45 Am and 2:45-4:00 Pm increases.
Just by understanding the three reasons then you can structure a trading strategy to earn profit. This article goes into depth on each of the three reasons why 9:30-10:45 Am and 2:45-4:00 Pm is the best time to buy and sell stocks.
Here at ChronoHistoria I teach people how to generate above average investment returns. I routinely publish articles that go over investment research, methodologies, and tips/tricks of the trade so that you are better prepared to profit in today’s crazy market.
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Let’s jump right into the article.
Reason 1 Why 9:30-10:45 and 2:45-4:00 Is The Best Time of Day to Buy and Sell Stocks For Profit: There Are More Individual Accounts Trading
As soon as the markets open up at 9:30 Am retail investors clamor to begin their trading day. As a result of this the total amount of individual accounts increases from 9:30-10:45 am. This effect also takes place later in the day during “power hour” of 2:45-4:00 Pm.
During periods of high amounts of individual trading accounts we see lower total risk. The reason behind this is because there is a significantly lower chance of market manipulation. Evidence for this comes from a 2008 article titled “On the Analysis of Irregular Stock Market Trading Behavior.”
When total amounts of individual stock market accounts are trading the market becomes more decentralized, which in turn lowers total risk. For you this means that any position you open or close will have a lower risk profile.
Simply put, trading the morning and later afternoon has less risk because more people are doing it. This doesn’t just apply to retail traders but also institutional funds as well. Several prominent hedge fund managers will open and close their positions in the early morning or late afternoon to take advantage of the lower risk profile.
Good investors will also be able to play the “spread” during this time. Overtime this means that you can lower the total cost of your position as you buy and sell at both the bid and ask. Think of it as buying a stock and instantly selling it higher than what you bought it. This overtime scalps some money off the top, which you recycle back into the position.
This is only possible because of the lower risk caused by more accounts during the two time windows however.
Reason 2 Why 9:30-10:45 and 2:45-4:00 Is The Best Time of Day to Buy and Sell Stocks For Profit: The Spread Between The Bid And Ask Decreases
During periods of high trading volume the spread between the bid and ask price on a stock will decrease. Therefore from 9:30-10:45 and 2:45-4:00 the spread becomes smaller as more and more people trade the stock.
This decrease in spread allows good investors/traders to make consistent returns by using trading strategies that earn off the increasing and decreasing spread. Several hedge funds make their money just from arbitrage trading on spreads throughout the day.
You can make money off both a widening spread and a closing spread. This is called dynamic spread trading and over the past decade it has become a favorite of quant hedge funds such as Renaissance Technologies, which has a portfolio that generates 66% per year!
I teach people how to employ advanced trading strategies such as High Frequency Trading of spreads. One of the easiest ways to trade spreads is to just bet that the spread will decrease during the time windows of 9:30-10:45 and 2:45-4:00. These are the best times of the day to buy and sell stock for a profit, and spread trading is one of the best strategies/methodologies. (I have several other articles on similar methodologies you can find by clicking here)
In June of 2008 the University of Pennsylvania published an article titled “Dynamic Spread Trading.” If you’re interested in the methodology I recommend checking it out for yourself. you can mimic it in your own portfolio to gain a couple extra percentage points at the end of the year.
Reason 3 Why 9:30-10:45 and 2:45-4:00 Is The Best Time of Day to Buy and Sell Stocks For Profit: During These Time Windows Market Volatility Increases
The goal of every trader/investor is to open and close positions to generate capital. In order to do this you need to have volatility in the markets.
Volatility is simply the ability of a stock to move in price rapidly. A stock with high implied volatility has a higher likelihood of rapid price movements. A stock with low implied volatility on the other hand might not move.
If there is no movement then traders/investors can’t make money. 9:30-10:45 and 2:45-4:00 are the best times to buy and sell stocks for profit. This is because the volatility is massive during these time windows. During the midday volatility tends to slow down across the entire market, which makes it harder to liquidate positions for profit.
Several large funds invested in the morning spike in volatility. One interesting facet of this volatility increase that funds benefit from is overnight information impacting international markets.
A study done in 1996 demonstrated how Japanese and European markets rely heavily upon news from U.S markets. This news creates volatility, which funds can invest off. It comes down to how fast information can spread across the globe. This in turn allows good investors to predict the best time of day to buy and sell stocks for a profit in other countries by watching U.S markets. Pretty cool!
Why Intraday Hours Are Worse Then Early Morning And Afternoon
This comes down to volatility and retail traders.
Retail traders tend to treat the stock market as a gambling casino. They go in and bet everything on black as soon as the doors open. When they lose or gain their money for the day they leave.
Retail traders perform a majority of their trades in the morning on Monday and in the evening on Friday. Between these times it’s the standard open and close of the markets. This is primarily because of the gambling instincts of the average retail trader in the stock market. (source for trading activity)
During the intraday hours institutional investors tend to take over with algorithmic trading models. The spreads will increase and the volatility will decrease as less retail investors are trading during the intraday hours.
This all changes between 2:45-3:00 Pm however. This is what is called by traders as the “power hour” and during this time we see retail traders and volatility return to the market.
By far the best time of day to open and close a position if you know what you are doing is the morning and afternoon. This is because you have less risk, more return, and are ‘playing’ against retail traders instead of the institutional investors.
However you need to know what you are doing to turn a profit. This is where I come in, here at Chronohistoria I teach people how to generate above normal investment returns. I routinely publish articles that go over investment research, methodologies, and tips/tricks of the trade so that you are better prepared to navigate today’s insane market.
Feel free to sign up to the free newsletter to remain up to date.
Further, you can check out some of the other articles below.
Do you still own a stock after its delisted? How do you sell it? Don’t worry the stock is still worth money and here is how to sell.
Making 1% a day in the stock market is hard but defiantly doable. Here are 3 simple steps to helping you achieve this return.
Short selling comes with many risks; one of which is that you will have to pay dividends on short positions. This can eat into your profit.
Until we meet again, I wish you the best of luck in your investment journey.