What Is the Best Time to Buy Stocks?

What is the best time to buy stocks?

Different from long-term investing, trading usually focuses on the short term.

Traders don’t buy stocks to hold onto for gradual gains; they aim for a relatively quick turnaround, often within specific timeframes—ranging from a few days to a quarter, or even less.

Day trading, as the name suggests, involves very short timeframes. Day traders analyze stocks in hours, minutes, and even seconds. The timing of a trade can be a crucial factor to consider.

Is there a specific best day or time to buy or sell stocks?

Are there particular times of the year or month that are best for stock trading?

In this article, we’ll guide you on how to time your trading decisions based on daily, weekly, and monthly trends.

Points to remember:

Traders often have specific timeframes in mind for when to enter and exit trades.
Day trading has the shortest timeframes, breaking trades down to hours, minutes, and even seconds.
The timing of trades holds significant importance. One common observation is that the first and last hours of a trading day are the busiest and offer the most opportunities, while the midday tends to be the calmest and most stable period during trading days.
Some traders believe that certain days might yield better returns, but over the long term, there’s limited evidence supporting such market-wide effects.

Best time of the day to buy stocks

Morning Rush

Right after the market opens, things can get pretty wild. It’s when all the events and news since the previous day’s closing bell get factored in, causing quite a stir in prices.

Skilled traders might spot patterns and profit quickly, but for beginners, these volatile hours can lead to hefty losses.

Novices might consider steering clear during this time, especially within the first hour. Yet, for seasoned day traders, those initial 15 minutes after the opening bell can be gold, offering some of the juiciest trades based on early trends.

Prime Time

This hour typically shines bright for day trading, showcasing significant moves in a short span.

Many professional day traders wrap up by 11:30 a.m. as volatility and volume start winding down. After that, trades take longer, moves are smaller, and volume decreases.

Futures and ETFs

Trading in index futures or actively traded index ETFs, like the S&P 500, can kick off as early as 8:30 a.m. (premarket) and ease off by 10:30 a.m.

Trading might stretch to 11:30 a.m. if the market keeps the opportunities flowing.

Midday

The middle of the day is the calm oasis. With most news already reflected in stock prices, traders await further announcements to gauge the day’s market direction.

For beginners, this quieter period could be a good window to place trades. It’s slower, making returns potentially more predictable.

Power Hour

As the trading day nears its end, the excitement ramps up again. Intraday market patterns often reveal a last-hour frenzy—sharp reversals and significant moves, especially in those final minutes between 3 p.m. to 4 p.m. ET.

Day traders aim to close their positions or ride a late-day rally, hoping the momentum carries into the next trading day.

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Best day of the week to buy stocks

The Monday Myth

Some believe that specific days yield better returns, but long-term data doesn’t strongly support this idea.

However, there’s a notion surrounding Mondays—known as the “Monday effect” or the “weekend effect.” It’s said that the stock market often takes a dip at the beginning of the workweek.

Traders attribute this to a probable influx of bad news released over the weekend or the generally low spirits as people return to work, notably visible during early Monday trading.

Interestingly, this Monday effect seems to have faded over time. Statistical charts from 2018 indicate that while Mondays historically showed slightly negative returns for the S&P 500, the impact was minimal.

Monday Blues or Monday Buys?

Despite this, some consider Mondays as a potential day for buying stocks, perhaps aiming to catch some deals amidst this historical trend.

Whether it’s due to habit or a faint echo of past market behaviors, some investors still see Monday as a window for potential bargains.

In the world of stocks, traditions and historical trends sometimes hold sway. While the Monday effect might not be as pronounced as before, it’s intriguing how market behaviors on certain days still catch attention.

Best day of the week to sell stocks

Friday Selling Strategy

Following the idea that Monday might be an optimal buying day, some consider Friday as a prime selling opportunity—anticipating a potential price dip over the weekend.

For those into short selling, Friday could signal a favorable moment to take a short position, especially if stock prices are higher at week’s end. This positions Monday as the ideal day to cover your short.

Weekend Impact

In the United States, Fridays before extended weekends, like three-day holidays, often hold a particular charm. The stock market tends to show an upward trend on these Fridays.

This surge is usually attributed to the positive sentiment preceding a long holiday break, reflecting a general positive mood among investors.

Understanding these tendencies can shape selling strategies. For some, the anticipation of Monday’s market behavior leads to Friday sales, while the buoyant pre-holiday vibes create a sell-high opportunity.

Whether it’s about market trends or a subtle dance with psychology, Friday holds its own significance in the realm of stock selling strategies.

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Best month to buy stocks

Year-End and Summer Returns

Historically, the markets tend to shine during two main periods: the turn of the year and the summer months.

Looking at the monthly average returns for the S&P 500 from 1950 to 2017, there’s a pattern indicating stronger returns during these times.

January

The concept of the “January effect” surfaces as the new year kicks off. Investors charge back into the equity markets, boosting prices, particularly for small-cap and value stocks.

However, as information about these trends spreads, the impact tends to fade.

December

Towards the end of December, small caps or value stocks have historically shown promise for a rise early in the following month.

An additional perk? Many investors sell off stocks nearing year’s end, especially those that have dipped in value, aiming to claim capital losses on tax returns.

While the end of the year might offer bargains, there’s a historical sell-off in December, potentially leading to a dip in investment value—a consideration after the possible January boost.

Best month to sell stocks

September and October

Traditionally, September carries the reputation of being a downward month.

Notably, October has witnessed significant drops in history, marking events like the Panic of 1907, the Great Depression, and Black Monday in 1929 and 1987, respectively.

September exhibits a historical trend of weak returns, potentially influenced by institutional investors wrapping up their third-quarter positions.

Analyzing the monthly average returns chart, September emerges as one of the least favorable months in the calendar year.

While October has seen positive average returns historically, it’s also notorious for some of the most severe market crashes. This dichotomy prompts caution.

Despite September’s weaker average, some might consider selling then to evade the potentially higher volatility associated with October.

Best date to buy or sell stocks

Month’s Start

At the start of each month, there’s a trend of stocks rising, largely due to incoming new money flows into mutual funds. This periodic inflow often boosts stock values.

Quarter’s End

End-of-quarter actions by fund managers come into play as they aim to spruce up their balance sheets.

This involves buying stocks that have performed well in that specific quarter. Conversely, stock prices tend to dip in the middle of the month.

Month’s Midpoint

For a trader eyeing advantageous stock buys, the midpoint of the month—say, around the 10th to the 15th—might hold promise.

This period often aligns with the market’s dip, potentially presenting buying opportunities.

Month’s End

On the flip side, the prime window for selling stocks might fall around the five days surrounding the turn of the month. This period has historically shown a tendency for favorable selling conditions.

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FAQ

Are There Really Best Times to Buy or Sell Stocks?

Historically, certain days or months have shown tendencies for better or worse stock performances, challenging theories of market efficiency.

However, with increased awareness of these anomalies and the rise of automated trading, these tendencies have largely diminished over time.

Is There a Way to Trade Stocks Over the Weekend?

Not quite. Major stock markets typically close on Friday afternoons, sometimes extending into after-hours trading.

However, Saturday and Sunday usually remain inaccessible for most traders as major markets observe closure.

Is There a General Rule for Timing Trades?

While the first and last hours of a trading day tend to be bustling with activity and potential opportunities, there isn’t a universal rule for timing trades.

Interestingly, many traders also find profitability during off-peak trading hours. The market’s dynamic nature often offers opportunities beyond the conventional peak hours of trading.

Final Thoughts

These suggestions regarding the optimal times for trading stocks or the best days and months for buying or selling stocks are broad generalizations.

Exceptions and irregularities are common, influenced by ongoing news events and the ever-evolving market conditions.

However, academic research indicates that any consistent patterns in market timing, leading to sustained above-average returns, tend to be short-lived.

As traders and investors become aware of these patterns, they are swiftly adjusted for, resulting in more efficient markets. As a result, opportunities stemming from these patterns often diminish over time.

References

Is There a Best Time to Buy or Sell Stocks? (Let’s See)