SStock traders rely on short-term price movements to drive profits. Knowing the best time to buy stocks throughout the trading day can help active traders create and execute a more successful trading strategy.
The Best Time of Day to Buy Stocks
Stock prices fluctuate throughout the trading day based on market sentiment.
A favorable earnings report might send a stock’s price higher, boosting investor demand almost as soon as the earnings press release drops. Conversely, negative news like some government body not approving a biotech drug candidate can spark instant selling, as investors scramble to offload that biotech stock to limit their losses.
Seasoned traders know that certain times of the trading day offer better buying and selling opportunities than others. Here are the key characteristics of each part of the trading day, and a look at why they are the best times to buy or sell stocks.
Pre-open session
The Indian stock market has this unique practice known as the pre-opening session, this is followed by both NSE and BSE. It lasts for 15 minutes before the day starts. This is to check extreme volatility in the beginning of the working day. Trading can not be done during these 15 minutes.
First 8 minutes
The first eight minutes of the pre-opening session are used for the following things:
- Placing, selling or canceling orders in the equity segment only.
- Orders in the equity segment can also be canceled and modified.
- Regular intraday and delivery orders can only be placed.
- After 9:07 a.m. no orders can be placed, till the end of the pre-opening session.
- Orders placed during these minutes at times do not go through, so if the order is canceled and one gets a notification then it has to be booked again.
“The stock market is a device for transferring money from the impatient to the patient.”
Warren Buffett
The Stock Market Open
The opening bell rings at 9:15 a.m. IST, which begins cash trading in the Indian stock market. Stock prices typically see dramatic moves right after the open. The reasons may vary, but two of the most common causes of price volatility at this time include:
- Overnight news. Company news that breaks after the closing bell on the prior day often drives after-hours trading. These trades are settled after the open, which can drive big gains or losses in stock prices.
- Morning headlines. Similar to overnight news, new headlines before the open can drive plenty of pre-market trading, with similar effects as overnight news.
Professional traders know that the stock market open is one of the best times of the day to buy and sell stocks. In fact, traders often refer to the market open as being full of “dumb money”—a harsh phrase used to describe those who buy or sell at the worst possible times, usually on the heels of a bombastic early morning headline.
Traders know the price-moving news is old by the time the market opens. So they can buy and sell during these first few minutes and hours with the full knowledge that stock prices typically stabilize by midday.
The upshot: Early market trading between 9:15 a.m. and 10:30 a.m. —sometimes as late as 11:30 a.m. —is the best time to
Afternoon Hours
After the morning mayhem, price movements and trading volume tend to settle down. Company news released during the midday or afternoon hours seldom creates the volatility seen after the open.
Without trading volume to drive strong price movements, plus a general lack of price-moving news, the hours between 11:30 a.m. and 2 p.m. IST don’t typically offer traders much profit potential.
The upshot: Mid-day trading hours between 11:30 a.m. and 2 p.m. IST aren’t the best times to buy and sell stocks for most traders, since stock prices tend to be more stable.
The Market Closing Session
During the closing hours of the share markets trading ceases completely, the 3:40 p.m. to 4 p.m. IST time slot is for equities traders, and here’s what is done:
- Orders in the equity segment can only be bought and sold.
- CNC or delivery trading is the only way trade is done in the equity segment during these hours.
- The price of every equity is going to be the same as it was at the time of the closing at 3:40, and will not rise or fall till the next day.
- For anything else, the market is closed.
The upshot: During the market closing session the market ceases from 3:40 p.m. to 4 p.m., but the delivery trading is on and if an investor finds out a particular equity whose price has considerably fallen, then it can be done at ease as the price will not rise till the next day.
The Best Day of the Week to Buy Stocks
Dan Casey, investment advisor and founder of Bridgeriver Advisors in Bloomfield Hills, Michigan, says that Mondays offer some of the best conditions for buying and selling stocks.
“It’s because of the long span between trading opportunities where news, bad or good, can come out and affect certain stocks or industries,” he says.
Between the closing bell on Friday and the opening bell on Monday, a lot can happen that could cause the price of a stock to rise or fall. Unlike weekdays, when there’s only a few hours worth of news to affect stock prices, two days of news and events can fuel pre-market trading before the opening bell on a Monday.
The upshot: Experienced traders often view Monday as the best day of the week to buy and sell stocks because of the time and pent-up demand since the last trading session the previous Friday.
What Does “Buy the Dip” Mean?
Traders often want to add to positions they already hold, and they are willing to wait for the right time to score a bargain on more shares.
When a stock slips from a recent high due to company news or market sentiment, and inexperienced investors scramble to sell, experienced traders may use the opportunity to scoop up shares.
This strategy is called buying the dip. Traders add to their holdings at a favorable price, often lower than shares they’ve previously purchased. Over time, buying the dip helps traders lower the average price paid for all shares they own of a company, making the entire position more profitable.
You can buy the dip during any of the best times of the day or week to buy stocks. While it’s not a strategy used by all traders, it can prove beneficial for traders looking to increase their long-term returns on a position.
4 Tips To Help Navigate The Best Time To Buy Stocks
While knowing the best times of the day to buy and sell stocks can help you navigate the market day, it’s not enough to build success as a trader. Instead, successful traders have a strategy that guides their overall portfolio and every transaction they make.
These five tips can help you shape a trading strategy to better capitalize on market fluctuations instead of being the investor who creates those market fluctuations with poor timing.
- Use technology to keep a track of the stock price. Use of moving averages can be used to track the fluctuations in the price.
- Set goals. Know what you want to achieve with your portfolio before you start trading. Your goal can be a specific rate of return, a certain dollar amount in gains or even a better understanding of a particular market sector.
- Speak with a tax professional. When you’re an active trader in a taxable brokerage account, you’ll be subject to short-term capital gains taxes, which will impact your net returns. A little tax knowledge can help you avoid costly trading mistakes.
- Know your limits. The best traders hope to be right more than wrong. It’s important to have rules for handling losses, so you don’t imperil your other financial goals.
- Don‘t forget to diversify. You don’t want your entire portfolio in upheaval during active trading hours. Diversification can help you find gains even when entire sectors are in a downturn.
The Bottom Line
While there are better times to buy stocks, most investors are likely better sticking to a long-term buy-and-hold strategy than market timing strategies best left to professional traders.
If you have questions about whether active trading fits your financial goals, reach out to a financial advisor for help. A conversation about your goals, time horizon and risk tolerance can help you make a more informed decision about trading.
