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What is the Best Time to Buy & Sell Stocks?

Steve Miley trader
Updated 14 Sep 2021

Day-trading comes with a short-term focus, as against traditional investing. Traders purchase stocks for quick profits within a time period from some days to even a month or a financial quarter. Day trading can even be broken up to days, hours, minutes and seconds. Is there any best time to buy shares? Or even the best day of the week to sell them? Can there even be a best month or day when to buy stocks? Let’s study how time trading decisions can yield instant profits and lasting returns.

  • Trade during the opening and closing hours for the best returns.
  • The Monday effect and the January effect offer key insights for seasonal traders
  • Holding shares for the right time is as important as buying or selling stocks
  • September is the best month to buy shares, given the October boom

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The Best Time to Buy & Sell Stocks

Right Time of the Day For Buying and Selling Stocks

Market volumes plus prices go to the extremes, first thing in the morning.

  • Opening hours are a window when market factors of all fresh releases since previous closing time contribute to volatility.
  • Skilled traders can recognise certain patterns and make quick profits during this period.
  • But less skilled traders could suffer immeasurably. For beginning traders, trading when volatility is high or at the start of the opening hour should be avoided.

What is the Best Time to Buy & Sell Stocks?

For experienced traders, the first quarter of an hour post the opening bell is the best time to trade. It is the period when the most profitable trades of a day on initial trends, are up for grabs. The time to day trade is during the first hour of trading. This is because the biggest trades take place in the least period of time. However, professional day-traders stop at that time, when volume, as well as volatility, hit a low. Once this takes place, trades are executed over a longer period of time with smaller moves and lower volume. Learning when to trade also depends on the assets and exchange timings. Another factor needs to be taken into account is the spread between bid and ask that is high in the first minute after the market opens.

Middle of the Day: Calm Before the Storm

As with stocks, index futures or ETFs can be traded for the first couple of hours, only if the market offers opportunities. Learning the best time to buy shares or sell them can take years of experience and specialised knowledge, though.

For those looking for the calmest trading period the middle of the day is usually it. This is because people wait for future news to be released at that time of the day. News reports have already been factored into share prices. So, many are waiting to see how the news for the rest of the day impacts where the stock-market is headed. Prices are generally stable during this time. Because the action is slow, returns may be easier to predict making it a right time for beginners to place winning trades. It’s literally the calm before the storm, as within the last hour of trading, volume and volatility rise. Most intra-day stock-market patterns reveal the closing hour is much like the opening. It’s replete with big moves, full-sharp reversals plus last-minute changes, especially during the closing seconds of trading.

The Closing Bell & The Trading Week

For the last hour of trading, day traders often try to close-out positions or join in a late intra-day rally hoping the momentum carries forward to the next day. The best time to buy shares within a week by unanimous consensus is Monday. For this reason, it is sometimes known as the Monday Effect. Over decades, the stock markets have displayed a tendency to plummet on Mondays. Research attributes this to a large number of negative news reports that release over the weekend. Some feel the start of the trading week could also be the most sluggish period.

While Monday is the right day, if you want to be clear about when to buy stocks, Friday is the ideal day to sell these before the weekend break. So while the start of the trading week is the ideal for purchasing shares, selling them results in profits only at the close. Of course, understanding when to buy stocks and sell them in the week or the year are a different matter altogether.

Right Time of the Year and the Month to Buy Stocks

Most traders are aware that market timing centres around understanding short-term pricing patterns. Trying to zero in on market highs and lows depends on timing. Seasonality centres around anticipating how markets will behave at a specific time during the year, and choosing positions before change inevitably results. If traders know December or January are stronger trading months, they can buy shares in November and lock in the position for the ensuing months.

Traders must understand that strong returns are common at the year’s turn and during summer months. September is traditionally the month of downward movements. Historically, the average returns in October are positive except the despite record drops during the American depression and the 1987 crash.

Yet another deciding factor to be considered is the January Effect. At the start of the year, traders return to markets with determination, pushing prices up. This is more so for small-cap and value stocks, as per the experts. For seasonal traders, the close of December is also an excellent point in time to purchase value stocks or small caps shares poised for rising in the coming month. Many investors also sell stocks towards the end of the year, especially those declining in value for claiming capital losses on tax returns filed. The last trading day each year can, therefore, offer excellent bargains. As a caveat, the January effect does not appear constantly through time, with years in which January would show a negative return.

Right Day of the Month To Invest

While no one particular day of the month is ideal for stock purchase and sales, shares tend to increase in value at the turn of a month. This is associated with periodic new cash flows directed towards MFs at the start of the month. Fund managers also try to make balance sheets match at the close of the quarter, by purchasing stocks performing well in that quarter. So stock prices tend to fall during the middle periods of a month. Traders can benefit from buying shares at the midpoint of the month, within a fortnight. The best time to sell these shares would be 1 – 5 days from the time of the month’s turn.

While these times to buy and sell shares are generalisations, exceptions abound. As market conditions evolve and news comes pouring in, the best time to trade shares can also change. The opening and closing trading hours are generally frenetic, offering massive opportunities. Contrarian traders score big trades during the off-periods too, however. Trading during specific hours can even maximise efficiency. Trading across the day takes more time for fewer rewards. Sometimes, even professional traders lose out on profits and returns outside of the best trading hours. Restrict yourself to the specific trading hours in a day for the best returns on trades that are placed.

Volatile Trading In Opening Hours

Trading is usually the most volatile during the first couple of hours.

The first hour tends to be most volatile, offering the greatest opportunities for profit-making. Professional traders are aware beginning hours mark the infusion of cash inflows people invest based on what they read in the papers or see on the news. The pitfall of this is that these people are reacting to the old news. This creates sharp price movements, pushing the stock or index in a particular direction. Expert traders benefit from the price, pushing it back again.

While the first 15 minutes of trading are a goldmine for veteran traders, novices fail miserably on account of trading volumes.

Based on these parameters, it is important to remember that trading is profitable for the first 4 hours of the trading time and just an hour before the closing bell. Premarket trading is not for everyone. Most traders starting out can make big gains after the opening bell, trading for just 3 to 4 hours. The goal of this is to maximize the gains in the shortest time period. Trading for just a few hours in a day lead to better performance as against trading all day for many. A lot of data is needed for establishing price target range and assessing if the stock is undervalued. Smart investors buy shares in quality stocks when the market is suggesting otherwise When the shares recover, traders can make a killing.

Volatile Trading In Opening Hours

Working Out the Safety Margins

An alternative strategy is to buy the stocks of significantly higher quality than stocks in broader indices one is seeking to beat. Paying a rational price is the only focus, once the watchlist is replete with quality stocks. This is when the safety margin is important. It represents the difference between intrinsic company value and share price. The bigger the discount, the greater the bargain. Checking if there is a right safety margin is crucial for placing winning trades. Some experts look for 10% for industrial businesses and 20% for the resources. Others like Warren Buffet state that a wonderful company at a fair price is worthier than a fair company at a wonderful price while buying stocks.

Many deals exist in the market today. The 2008 – 2009 period offered great opportunities for getting stocks at beaten down prices too. While buying or selling a share, establishing a range of value is important. Without a price target range, investors can be facing issues regarding when to buy a stock. One of the best ways to evaluate the extent of under or overvaluation is to estimate the future prospects of the company. For instance, discounted cash flow analysis is a key valuation technique to use. Other techniques and metrics include comparing price-to-earnings multiples of stocks with competitors and price to sales or price to cash flow to see which ones are a bargain.

Best Brokers to Buy and Sell Stocks:

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Finding the right broker for you is perhaps the most important part of the process. While you can trade stocks with most brokers on the market today, not all brokers are created equal. If you're ready to start trading stocks, you'll need to use a broker that is FCA regulated, has low trading commissions and a reliable trading platform. Finding one can be an arduous and daunting task, which is why we've hand-picked favourites that tick all of these boxes to help you get started.

Buying & Selling Stocks At the Right Time

Once the research regarding timing a trade is complete, remember that waiting is sometimes the best policy. It can take time for stocks to trade up to the true value. You need to ensure that the time to act is rightly judged. Stocks need to be held for 3-5 years, especially if there’s a chance they can yield good returns. Buying stocks you know about is important, according to stock market expert Peter Lynch. Identifying undervalued opportunities involves looking for stocks with specific RSI values. Understanding price activity matters too. The time at which you buy or sell a stock is another important factor for trading success.

For maximising efficiency, trading within set hours is important. It prevents mental fatigue and the possibility of making mistakes or losing money. When it comes to trading hours, less is more. It is when investors turn away from their usual investment approach that trouble occurs. It is critical to remember money cannot be made on each trade. While using fundamental research and overlay technical strategies to time entries and exits. Other ways to beat the markets are also there. Timing trades correctly is just one of them.

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Steve has 29 years of financial market experience including 3 years at Credit Suisse and 15 years at Merril Lynch. Steve is the Academic Dean for The London School of Wealth Management and has won many awards from Technical Analyst Magazine.