Day trading is the practice of buying and selling financial assets like forex, commodities, stocks, indices, and bonds with the goal of generating a profit.
Unlike investing, trading has an extremely short-timeframe horizon. It is not uncommon to see a trader open a trade and then close it within a few minutes.
So it is natural that many traders want to know ‘what are the best hours of the day to trade‘ (or days or months). Having the explicit goal of maximizing one’s efforts and earnings.
In this article, we will explore together the best time of the day to trade.
Why trade at specific times?
The financial market have become extremely dynamic in the past few years. For one, markets are open for more hours these days.
Depending on the assets you trade, it is possible for you to trade 24 hours every day. For example, the forex market is open for 24 hours five days a week while cryptocurrencies are traded on a 24-7 basis. Stocks, on the other hand, are open Monday to Friday for a few hours every day.
Therefore, having a specific time to trade can help you a great deal for several reasons. First, it will become a routine, which will make it easy for you to trade. Second, having a specific time will help you develop patterns for specific assets that you trade.
Third, and most importantly, all market hours are usually not the same. For example, in stocks, the most active hours are during the market open. For forex, the best times to trade are usually at the intersection of the Asian and European sessions and the intersection of the European and American sessions.
American stocks trading sections
There are typically four key periods of the American stock market. The regular session usually opens at 09:30 AM and then closes at 16:30 ET. This is usually the most active period when most traders are participating in the market.
It is possible to trade before the market opens, in what is known as the pre-market session. This session runs from 4:00 to 09:30 ET. This is a very important session since it typically sets the tone for the day. In most cases, pre-market movers will typically have the most activity in the regular session.
It is also possible to trade after the market closes, in what is known as the extended session. Like the pre-market session, extended hours are extremely important, especially during the earnings season.
Different time, different orders
The only difference between premarket and extended hours and the regular session is the type of orders that are opened.
In the regular session, a trader can execute both pending and market orders. On the other hand, in the pre-market and extended hours, a trader can only open pending orders that are executed when the market opens.
Best time to trade stocks
To be clear, there are trading opportunities at all times in the financial market. However, after analyzing market action during all sessions, most analysts believe that trading at the start of the regular session offers some of the best opportunities.
This happens because this is the time that the pending orders executed in the pre-market and extended hours are filled. Therefore, between 09:30 and 10:30 is an excellent time to trade because there is high volume and a lot of volatility.
On the other hand, trading towards the market close can be a bit risky since this is the time that most traders close their positions. As such, it is possible to get some false signals.
Still, some traders have mastered how to trade well and make money during the day when volume and volatility are scarce. They do this by analyzing trends and identifying how stocks trade after the initial volatility that happens during the market open.
Another time that shows some volatility is during the overlap between the American and European sessions. This usually happens at around 5:40 pm GMT. In this period, some traders usually transition from trading European stocks to American ones.
Best times to trade forex
The forex market is usually open 24 hours Monday to Friday. The three primary sessions for the forex market are the Asian, European, and American. In most cases, the Asian session usually shows the least volatility because of the limited major events that happen during the period.
The volatility then starts to pick up during the European session followed by the American one. Still, the period with the most volume and volatility are the intersection of the Asian and European and between European and American sessions. The chart below shows these timelines.
The European and American sessions are important because of the data that typically come up. For example, some of the most important data like non-farm payrolls (NFP), inflation, and retail sales usually comes in the American session,
Using futures market in trading
An important thing about market timing is the futures market. The most important futures market are on key indices like the Dow Jones, S&P 500, and Nasdaq 100. In most cases, the performance of these futures assets can determine how to trade other assets.
For example, if the Dow Jones futures are down by 1%, it means that European indices like the DAX and FTSE 100 will also open sharply downwards. If these indices are falling, chances are high that the US dollar index is rising since it is often seen as a safe haven.
Best times to trade commodities
Another common question is on the best times to trade commodities like gold, silver, and copper.
Like with forex, these commodities are usually provided for longer periods. Also, these assets tend to have a close relationship with the broader market. Therefore, the best times to trade commodities is usually in the European session.
Timing is an important thing in trading. In this article, we have looked at the concept of the time when the different market opens and closes. We have also looked at the best times to trade that have the most volatility and volumes.
Still, as we have noted, it is possible to craft a strategy that focuses on periods with no volatility.
External useful resources
- What is the best time to trade? – Quora