Here’s a really interesting trader question that came in via email recently.
Trying to be as specific as possible about my trading routine, I decided to allocate some time every evening Monday to Friday to market analysis. Should I find a setup, the trade will be planned, and the actual trade taken during the next working day. But then it ocurred to me that the trading day is 6,5 hours long, and I wondered if one should also be specific about the time of day when trades will be placed, and if so, how can one determine the best time of day for taking trades on a routine basis. For the record, I have chosen to trade the stock market on a daily timeframe.
In most cases the stock market is most active in the first and last hours of the trading day. There are quite a few traders using strategies based strictly on those times. These traders are usually active ones who are able to watch the markets in real-time, though.
For the sake of this questioner, it probably doesn’t really matter what time of day the trades are done, though it could. If liquidity is an issue, then picking out the most active times of day are important. If the trades are meant to be quick in and out trades, then again the most active times of day will likely be the best choices.
If, however, the moves the trader is going after are ones that generally span several hours and the stocks being traded aren’t on the very low end of the market cap spectrum, then it probably doesn’t matter when the trades happen. The one exception there is probably not taking trades late in the day if they are only to be closed before the end of the session since they just won’t have the time to develop as per usual.
All of this deserves testing, though. Don’t just take my word for it. Experiment.
The one thing I would ask this trader is why he’s going with this day trading from the evening approach. I’m not suggesting it’s a bad one as it could be a very good one. I’m just curious about the motivation. This sort of approach can be very useful for someone in this circumstance, but does present a risk of being messed up by the trader who wants to check in on his positions during the day.
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About the Author
John Forman, author of this blog, has traded for more than 20 years, is a professional market analyst, and authored The Essentials of Trading. He is an active participant in trading forums, consults for trading related businesses, as published literally dozens of trading articles, and has been quoted in a number of books and in the media.
** See John’s full bio.
