Trading frequently focuses on the short term, in contrast to long-term investing. A trader buys a stock not to hold it for a long time but for a quick turnaround, usually within a certain amount of time—say, a few days, a week, a month, or even a quarter—rather than for a long period of time.
Naturally, day trading has among the shortest time frames of any type, as its name suggests. The analysis of a day trader can be broken down into hours, minutes, and even seconds. The time of day a trade is made can also play a significant role.
Is there a particular day of the week when stocks are at their best? Or a day when stocks are best sold? Exists a best time of year to purchase stocks? What about the best month to buy or sell stocks?
We’ll show you how to time trading decisions based on daily, weekly, and monthly trends in this article.
Key Takeaways
- When entering and exiting trades, traders frequently have predetermined holding periods.
The shortest time frame for trading is called “day trading,” and trades can be made in hours, minutes, or even seconds. When making a trade, the time of day can be an important consideration. - The closest thing to a firm rule is that the first and last hours of a trading day are the busiest and provide the most opportunities, while the middle of the day is typically the calmest and most stable time of the day on most trading days.
- Although there is some speculation among traders that certain days consistently offer higher returns than others, there is little evidence that this is the case across the market in the long run.
- When to Buy or Sell Stocks: Market volumes and prices can soar in the early hours of the morning. Price volatility is exacerbated during the opening hours, when the market takes into account everything that has happened and been announced since the previous closing bell.
Best Times of Day to Buy or Sell Stocks
While a less skilled trader may be able to identify the right patterns and profit quickly, a skilled trader may suffer significant losses. Therefore, if you are a novice, you might want to steer clear of trading during these volatile hours, or at least during the initial hour.
However, for seasoned day traders, the first 15 minutes after the opening bell are prime time because they typically offer some of the day’s largest trades on the initial trends.
One of the best times of the day for day trading is typically the opening period, which runs from 9:30 a.m. to 10:30 a.m. Eastern Time and offers the greatest moves in the shortest amount of time. Because volatility and volume tend to decrease around 11:30 a.m., many professional day traders stop trading. Once that takes place, trades take longer, moves are smaller, and volume is lower.
If you trade index futures like the S&P 500 E-Minis or an actively traded index exchange-traded fund (ETF) like the S&P 500 SPDR (SPY), you can start trading as early as 8:30 a.m. (premarket) and stop trading around 10:30 a.m. (tapering off). As with stocks, you can continue trading until 11:30 a.m. (tapering off) if the market still has opportunities for you to take advantage of them.
The middle of the trading day typically marks the calmest and most stable period. People are waiting for more information to come out at this point. Many people are keeping an eye on the market to see where it might be headed for the remainder of the day because the majority of the day’s news releases have already been factored into stock prices.
It is a good time for novice traders to place trades because prices are relatively stable during this time. This is because the action is slower and the returns may be more predictable.
Volatility and volume rise once more in the final hours of the day. In point of fact, common intraday patterns in the stock market indicate that the final hour may resemble the first, with sharp reversals and significant shifts, particularly in the final few minutes of trading.
Day traders often try to close out their positions between 3 and 4 p.m. ET, or they may try to join a late-day rally in the hope that the momentum will continue into the next trading day.
Best Day of the Week to Buy Stocks
Throughout the long term, there is very little evidence for such a market-wide effect, but there are those who believe that certain days offer systematically better returns than others.
Nevertheless, most people believe that the best day to work is the first of the week. It’s known as the weekend effect or Monday effect. The stock market has been known to fall on Mondays, according to traders.
Some people believe this is because a lot of bad news is usually announced over the weekend. Others point to the pessimistic mood of investors as a result of having to return to work, especially in the early hours of Monday trading.
The Monday effect has largely vanished, for whatever reason. From 2000 to June 2023, the S&P 500’s average Monday returns have been negative, but the effect is very small, as the chart below demonstrates.
The Trader’s Insight, IBKR Campus. S&P 500: Which Day of the Week Is Best?”
However, if you intend to purchase stocks, it may be best to do so on a Monday rather than any other day of the week, allowing you to potentially acquire some bargains.
Best Day to Sell Stocks
If Monday is the best day of the week to buy stocks, Thursday or the early part of Friday may be the best day to sell them before prices fall. If you’re interested in short selling, the best days to take a short position are Friday and Monday, respectively, if stocks are priced higher on Friday.
Fridays on the eve of three-day weekends are typically particularly good in the United States. The stock markets typically rise in advance of these observed holidays due to generally positive feelings prior to a long holiday weekend.
Best Month to Buy Stocks
The January effect is a term for it. According to “Stocks for the Long Run:,” the idea that at the beginning of the year, investors return to equity markets with a vengeance, driving up prices, particularly of small-cap and value stocks Jeremy J. Siegel wrote “The Definitive Guide to Financial Market Returns and Long-Term Investment Strategies.” However, once more, the effects tend to fade as information about such potential anomalies spreads through the market. From 2000 to 2019, prices increased ten times and decreased ten times, as shown in the graph below.
Best Month to Sell Stocks
The ideal time to sell stocks is in September, which is typically regarded as a down month. The September effect highlights historically low returns in the ninth month of the year. Institutional investors may help by closing their positions in the third quarter. In fact, the month of September has the worst monthly average returns of the year, as shown in the chart above. So, according to some traders, September is the best time to sell stocks.
Some investors also notice the October effect. Although October has typically been a positive month historically, it has also been the month of many of the worst market crashes (Black Monday, the Great Depression, and the Panic of 1907). Therefore, even though September may typically be a weaker month than October, you might want to sell during this month to steer clear of the above-average volatility that October may exhibit.
The Best Day of the Month
There is no one day of the month that is always the Best Day to Buy or Sell. However, stocks typically rise at the beginning of each month. This tendency is primarily caused by monthly new money flows that are directed toward mutual funds.
Additionally, fund managers buy stocks that have performed well during that particular quarter in an effort to improve the appearance of their balance sheets at the end of each quarter. In the middle of the month, stock prices typically decrease.
As a result, timing stock purchases between the 10th and 15th of a month—for instance—may be advantageous for a trader. The five days before the beginning of the month would probably be the best time to sell stocks.
Do the best times to buy and sell stocks actually exist?
Stocks have typically performed better or worse on certain days or months in the past. Theories of efficient markets were challenged by these so-called market anomalies. However, research indicates that these anomalies have largely vanished as trading became more automated and became more well-known.
Is There a Standard Approach to Timing Trades?
The first and last hours of a trading day are the busiest and offer the most opportunities. This is the closest thing to a strict rule. However, many traders also make money in their spare time.
How Can Investors Benefit from Dollar-Cost Averaging?
The practice of purchasing the same quantity of a particular stock at regular intervals is known as dollar-cost averaging. You can, for instance, purchase five shares of ABC stock every two months at any price. This reduces price volatility and has the potential to lower the average price paid for each share as a whole. Additionally, it eliminates trying to time the market.
The Bottom Line
These suggestions for the best day of the week to buy or sell stocks, the best month to buy or sell stocks, and the best time to trade stocks are, of course, generalizations. Depending on news events and changing market conditions, there are numerous exceptions and anomalies.
Still, academic evidence suggests that any patterns in market timing where one can consistently generate abnormal returns are usually only for a short period of time. This is because these opportunities are quickly arbitraged away and markets become more efficient as traders and investors learn about the patterns.
