Stock prices fluctuate throughout the trading day based on market sentiment. A favourable earnings report might send a stock’s price higher, boosting investor demand almost as soon as the earnings press release drops. Conversely, negative news locally and internationally can impact the ASX. For example, the ASX 200 opened 2.1% lower on August 2, at 7,946 points by 10:25am AEST, on the back of sobering economic data out of the US.
Seasoned investors 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.
The Stock Market Open
The opening bell rings at 10am AEST, which begins trading in the ASX 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. Furthermore, if Wall Street closes down then this may be reflected in a dip in the ASX the next morning.
- 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: In the US, early market trading between 9.30 am and 10:30 am ET—sometimes as late as 11:30 am EST—is possibly the best time of the day to buy and sell stocks for those who are looking to capitalise on price volatility. Australian investors have a similar ethos, with many believing the first couple of hours of the market opening is the best time to trade shares.
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 am and 2 pm AEST don’t typically offer traders much profit potential.
The upshot: Midday trading hours aren’t the best times to buy and sell stocks for most traders, since stock prices tend to be more stable.
The Market Close
After the calm comes the storm—the final hour of the trading day brings a flurry of activity. From traders looking to get in on a late price rally and funds that need to rebalance their portfolio to sellers who want to close out day trading positions, the afternoon trading period offers plenty of volume and price movement.
Traders often find that the hour before market close (at 4pm) brings inexperienced investors back into the market who make trades based on the day’s news. As a result, more experienced traders can capitalise on inexperienced traders’ poor timing, likely driven by news trends instead of strategy.
The upshot: Like early market trading, the hour before market close from 3pm to 4pm is thought of as one of the best times to buy and sell stock because of significant price movements, higher trading volume and inexperienced investors placing last-minute trades.
