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Best Time To Day Trade

by | Aug 26, 2020 | Forex Trading |

Done By 10 AM? Best Time To Day Trade

Done by 10 AM? In this article, I explore the best time to day trade, including covering the 10 AM stock trading rule, the best times to day trade including trading in the morning or afternoon and the best days of the week and times of the year to day trade.

10 A.M. Rule Stock Trading

When it comes to day trading, the best way to earn a profit is to take advantage of small price fluctuations in the market. But how will you know when is the right time to maximize that potential? Most of the advice given to day traders is to trade during the first two hours after the market opens. However, there are instances wherein it is not advisable. 

For stock trading, there is a 10 A.M. rule which allows the traders to protect their capital. According to this principle, a trader will have to wait after 10 A.M. and observe if the stocks will reach a new high before buying them. Stocks usually gap up in the early morning but may eventually fall into negative territory. If these stocks make it to a new high after 10 A.M., it has a chance that it can still get higher, which makes it the right time for the trader to buy them. Of course, you should not forget to put stops that will protect your trades further.

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Best Time For Intraday Trading

The most convenient time for intraday trading is during the first two hours when the market is volatile. It presents a lot of openings, but they also come with higher risks. For beginner intraday traders, the best time is 30 minutes after the market opens. Long-time traders who are much more experienced in dealing with a highly volatile market can already trade 15 minutes after opening. 

During the first hour of the market opening, there is a lot of “dumb money” going around. The “dumb money” phenomenon is due to other traders making transactions based on old news, specifically the night before. When this happens, it creates a sharp price movement in one direction, making the market highly volatile. Professional traders will then take advantage of this activity and push back against it.

What Time Chart Do Day Traders Use?

Since day traders act based on short movements on the markets, knowing what time frame to monitor will help them understand more about their trades. This is the reason why incorporating a time chart in your trading plan or strategy is valuable. However, it does not necessarily mean that you should only use one. 

In the case of day trading, you can combine different time charts so you will have a better understanding of your trades in a day. As a general rule, longer time frames will display the primary trend of a trade, while shorter time frames will give more details of a trade. Day traders usually use a tick chart for monitoring when the market opens as it provides more detailed information and a clear view of short-term trends. As already stated before, the market is highly volatile during the first few minutes after opening, providing more trading signals in the tick chart. Using one-minute or longer charts during the first few minutes will present less activity and make a trader miss important trading signals.

However, you cannot just use the tick chart as the day progresses because it will only drown you out with too much detail and make you lose sight of the current trade. This is where the one-minute, two-minute, and longer time charts will come in handy. Extending the time frame as your trading hours progress gives more context to the market’s volatility, trends, and it also makes monitoring intraday support and resistance easier. 

Finding the best entry and exit points of a trade for intraday trading is possible with the use of multiple time frames. While day traders use short time frames to get more details, they would also benefit from watching longer time charts to reveal the price action of the entire day. 

Which Time Frame Is Best For Support And Resistance?

Technical analysis is a highly required skill when it comes to trading, especially in day trading wherein a trader needs to think and act quickly. One aspect of technical analysis which traders should grasp is support and resistance. This refers to the observation of price action in the market and identifying patterns to determine the direction of the market and eventually determine the best entry and exit points. Other purposes of using support and resistance are:

  • Identifying bounce spots
  • Trading breakouts
  • Trading bounces
  • Timing the entry of a trade
  • Putting a stop loss and taking a profit

Support is the level that prevents a downtrend due to a high concentration of demand. When the price of an asset declines, more buyers are more likely to buy it, creating a support line. On the other hand, resistance prevents the price from going higher as sellers tend to sell more when price increases. 

The best way to use support and resistance in day trading is to buy an asset as it hits support level and short-sell when it hits resistance level. However, traders should be wary of a breakout or when the price of an asset moves outside the support or resistance level. There is also a chance of a false breakout or when a price moves beyond a level that may look like a breakout is happening, tricking a trader into making a trade, then the price will unexpectedly move in the opposite direction that will lead to losses. 

The time charts that should be used to identify the support and resistance levels vary from one trader to another. Support and resistance levels are more significant and easier to identify in longer time frames, while shorter time frames are best for trading breakouts. For day traders, they should take advantage of using a daily chart to find the support and resistance levels and combine that by using a 15-minute chart for trading breakouts. Combining two time charts gives more dimensions to the technical analysis of trade. 

Finding out the best support and resistance tool is a matter of preference and it will depend on the trader’s psychology and strategy. Reading and practicing on these tools will lead the trader to what is best for him, so it may take weeks to find the right one. Some of the most popular support and resistance tools that you can try and test are:

  • Fibonacci
  • Moving averages
  • Trendlines and channels
  • Pivot points
  • Round levels

How Many Trades Do Day Traders Make Per Day?

There is no minimum or maximum number of trades a day trader could make in a day. The general rule is that your trading strategy defines how often you should trade. Many beginner day traders tend to undertrade or overtrade during the first few times. This means that they might miss trading signals out of fear of incurring losses or they lack discipline and forget about their strategy.

If a day trader has a well-thought-out strategy, day traders will have a clear understanding of how many potential trades they could make under certain conditions and have better exit points to make a profit or limit their losses. Developing and practicing various strategies allow a trader to find what suits his preferences and helps him adapt to the changing market conditions throughout the day.

Buy Shares Morning Or Afternoon

The best time to buy stocks is during the first two hours after the market opens. The reason for this is because the market is usually highly volatile during these times. There are huge price movements which present the most opportunities for making a profit but there is also considerable risk. Many would say that the ideal time to make a trade is 15 minutes after the market opens. Experienced traders will benefit during that time, but for beginners, it is better to wait 30 minutes to 1 hour before making any trade. 

Day traders may also buy shares during the afternoon, specifically during the last hour of the trading day. After the morning rush, the market calms down in the middle of the day with prices being stable. Beginners might be interested in trading during these hours as the market can get predictable. However, the closing hour usually offers sharp reversals or rallies that experienced traders can take advantage of. 

Best Time To Sell Stocks

To make a profit in stock trading, you need to buy and sell a stock at the right time. Some say that selling is a harder decision to make rather than buying. Why is that? Because there are times that emotions get the best of the trader. Greed often gets in the way of the trader’s ability to make wise decisions and this results in huge losses. How does one determine if it is time to sell? Below are some indicators which tell you when to sell your stocks:

  • Using fundamental analysis. Not everyone can access the financial statements of a company, but if you do, you can use indicators, particularly financial ratios, to analyze a company’s performance. These ratios can be in the form of price-to-earnings, dividend yield, earnings per share, projected earnings growth, and price-to-ratio. With these numbers, you can spot the signs that the price of a stock will decline even if it seems like it is on a good run. If you can determine the signs, that is the best time to sell the stock before it fails.
  • When buying a stock was a mistake. The stock you purchased may not be a good investment after some thinking and analysis. It might result in a loss, but if your data shows that it is not a suitable asset, then it is a good indicator that you should sell it.
  • When you hit your target price. If a stock hits your lower or upper price limit, it is now time to sell it. Setting a limit and following through it allows you to eliminate emotions when selling a stock.
  • When trading volume becomes lower. If a stock is nonperforming, it is an indication that something is happening, resulting in a lower trading volume. If this happens, it is an indication that you could sell it.

What Time Frame Do Professional Traders Use?

Professional traders use different time frames from one another. No single time frame fits everyone’s strategy and preference. Seasoned traders have already identified each time frame’s strengths and weaknesses and they use these factors to find the best time frame that will suit their trading strategy and personality. For example, traders use shorter time frames if they plan to make many trades in a day. However, traders who only plan to make a few trades will benefit in using longer time frames. 

Best And Worst Day Of The Week To Buy Stock

Many traders believe that Monday is the best day to buy stocks because the market has a history of continuing the movements from last Friday. This is known as the “Monday effect.” It is also called the “weekend effect” because there is a theory that the market drops at the beginning of the week due to accumulated bad news over the weekend. 

While there is historically the best day to buy stock, it is not the sole basis of a successful trade. Research and technical analysis are still the best skills to have to find out whether a particular day can be profitable. 

Best Time To Buy Stocks In The Year

Prices traditionally go down during September, so buying stocks during this month is highly suggested to get ready for the price hike in October. The month of December also sees a drop in prices because investors sell their stocks to harvest capital losses and offset tax liabilities. This month is the best time to buy small caps or value stocks to prepare for another rise in prices in January. 

As traders get more experienced, it will be easier to make a trading strategy that will help them determine daily, weekly, or yearly patterns and make the most out of it.

As always, best of luck!

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