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Trading Tips-Tim Sykes Penny Stock

What Is the Best Time for Day Trading?

Written by Tim-bot
Reviewed by Friedrich Odermann Fact-checked by Ed Weinberg
Updated 1/11/2024 15 min read

In the world of day trading, timing is everything. Identifying the best times for day trading can make a difference in the rates of transactions and money changing hands, investment activity on brokers and platforms, and ultimately your investing returns. Whether you’re new to the trading scene or a seasoned player, the bottom line in day trading is knowing when to act and when to watch.

Readers should dive into this article because it makes a case for the optimal times for day trading, crucial for maximizing profits and minimizing risks.

I’ll answer the following questions:

  • What is day trading?
  • How does day trading work?
  • What is the best time for day trading?
  • What are the best day trading strategies?
  • How does trading on a 15-minute chart differ from a 5-minute chart?
  • What is the significance of trading during the market’s opening and closing hours?
  • How can backtesting improve day trading strategies?
  • Why is understanding market hours important for day traders?

Let’s get to the content!

What Is Day Trading?

Day trading involves buying and selling stocks, ETFs, or other financial instruments within the same trading day. Day traders capitalize on small price movements, often leveraging large amounts of capital to do so. Unlike investors who might hold positions for years, day traders close out all trades by the end of the day, avoiding the risk of price gaps overnight.

How Does Day Trading Work?

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In day trading, traders look for opportunities where a stock or ETF shows potential for significant price movement in a short period. They use various strategies and analysis methods, including technical indicators, chart patterns, and market news. The goal is to enter and exit trades quickly, securing profits from the price fluctuations that occur throughout the trading day.

What Is a Day Trading Time Frame?

Day trading time frames refer to the duration over which a trader observes price movements and makes trading decisions. These range from very short-term (like 1-minute or 5-minute charts) to longer periods (like hourly or daily charts). Each time frame offers different insights into market behavior and requires different trading strategies to capitalize on the price action effectively.

What Is the Best Time for Day Trading?

When it comes to day trading, timing is more than just a factor — it’s the bedrock of success. Many new traders enter the market without understanding the significance of the trading day’s ebb and flow. The reality is, not all hours are created equal. During the first hour after the markets open, particularly the New York Stock Exchange and NASDAQ, volatility and volumes spike. This period, typically from 9:30 to 10:30 AM EST, offers numerous opportunities for profit, but it’s also laden with potential losses. It’s crucial to approach these early hours with a solid strategy and an understanding of market psychology.

Conversely, the market often slows down around midday, making it less ideal for certain types of trades. However, the last hour of trading, from 3:00 to 4:00 PM EST, can see another increase in activity. This is when big players, like institutions and funds, adjust their positions, potentially leading to significant price movements. It’s important to note that while these hours can be optimal for day trading, they also require quick decision-making and an acute understanding of market dynamics.

Understanding the best times for day trading is crucial, but knowing the specific top times to trade can significantly enhance your strategy. Different market hours offer varying levels of volatility and opportunity. For day traders, capitalizing on these windows is key to maximizing efficiency and profitability. It’s not just about the opening and closing bells; it’s about pinpointing those sweet spots in the trading day when the conditions align with your strategy. To dive deeper into this topic and optimize your trading times, check out my insights on the top times to trade for maximum efficiency.

Trading When the Market Opens

The first hour after the market opens is often the most volatile, offering significant opportunities for profit. Price movements are largely driven by overnight news and events. Traders must be quick and decisive, as the high volatility can lead to rapid price changes.

Trading During the Last Hour

The last hour before the market closes can also present profitable opportunities. Day traders might capitalize on trends that develop throughout the day or make trades based on anticipations for the next trading day. This period requires a good understanding of market sentiment and the day’s trading patterns.

Middle of the Day

The middle of the day tends to be less volatile and can be challenging for day trading. However, it can be a good time for detailed analysis or to prepare for the closing hours when volatility often picks up again.

Trading on a 15-Minute Chart

A 15-minute chart offers a balance between the detail of short-term fluctuations and the broader view of the market trend. It’s suitable for traders who look for patterns and trends that last several hours.

Trading on a 5-Minute Chart

The 5-minute chart is popular among day traders for its ability to show short-term price movements and trends. This time frame requires quick decision-making and often suits more experienced traders.

1-Minute Time Frame Trading

The 1-minute chart is the most short-term and volatile. It’s used for quick scalp trades and requires a high level of discipline and a solid trading strategy to be profitable.

Trading on Multiple Time Frames

Using multiple time frames in analysis can provide a more comprehensive view of the market. For example, while a 1-minute chart shows immediate price action, an hourly chart can offer insight into the broader trend. This approach helps in making more informed and balanced trading decisions. It allows traders to align their strategies with both short-term fluctuations and longer-term trends, offering a more nuanced and effective way to navigate the markets.

For a deeper understanding of how to leverage this technique, explore my guide on technical analysis using multiple time frames.

Best Days and Months to Trade the Stock Market

Statistically, the stock market tends to perform better at certain times of the year. Months like December and January often see increased market activity. Additionally, trading on days like Monday or Friday can present different opportunities and risks compared to mid-week trading, due to patterns like the Monday effect or weekend news developments.

How To Start Day Trading

Starting in day trading requires a blend of education, strategy, and practical experience. Beginners should focus on learning market fundamentals, technical analysis, and the psychological aspects of trading. Practicing with a demo account or small positions can help new traders gain experience without significant risks.

Best Day Trading Strategies

In day trading, your strategy is your roadmap. One effective approach is ‘trend following’ where you trade in the direction of the market trend. This requires keen observation of price movements and an understanding of when to enter and exit trades. Another strategy is ‘scalping’, which involves making numerous small trades to capitalize on minor price changes. Scalping demands a high level of attention and swift execution, making it suitable for traders who can dedicate that kind of focus.

Swing trading is another strategy, although it tends to stretch beyond a single trading day. It involves holding onto shares for several days to capitalize on expected upward or downward market shifts. This strategy demands a deep understanding of market trends and psychology. Regardless of the strategy, successful day trading always rests on thorough research, continuous learning, and an unwavering discipline. Over years of trading and teaching, I’ve observed that the best traders are those who adapt their strategies to the market, rather than trying to force the market to adapt to their strategies.

Starting with the right strategies can make a significant difference in a trader’s journey. Beginners need strategies that are not only effective but also align with their learning curve and risk tolerance. It’s about laying a solid foundation and gradually building upon it as skills and experience grow. For those just stepping into the world of day trading, I’ve compiled a list of trading strategies specifically tailored for beginners, designed to help you start on the right foot.

Momentum Trading Strategy

Momentum trading involves identifying stocks that are moving significantly in one direction on high volume. The key is to join the move early and ride the wave of momentum to capture profits.

Scalping Strategy

Scalping is about making numerous small profits on minor price changes throughout the day. This strategy requires quick decision-making and excellent market analysis skills.

Breakout Trading Strategy

This strategy involves trading a stock as it breaks out from a previous trading range. The breakout is typically on high volume, indicating strong market interest.

Pullback Trading Strategy

Pullbacks in a trend are seen as buying or selling opportunities, depending on the overall trend. This strategy requires understanding of trend analysis and pattern recognition.

News Trading Strategy

News traders take advantage of the volatility caused by significant news events. They must quickly interpret company news and make rapid trading decisions.

Range Trading Strategy

Range traders capitalize on stocks that are moving within a specific price range. They buy at the bottom of the range and sell at the top.

High-Frequency Trading (HFT) Strategy

High-frequency trading involves sophisticated algorithms to execute a large number of orders at extremely high speeds. This strategy is typically used by professional traders and requires substantial technology and capital.

Backtesting in Choosing the Best Time for Day Trading

Backtesting involves applying trading strategies to historical data to see how they would have performed. It is crucial for understanding the effectiveness of a strategy and identifying the best times for day trading. Successful backtesting requires a thorough understanding of market conditions and an ability to accurately simulate those conditions.

How To Choose the Best Time Frames for Day Trading

Selecting the right time frame for day trading is not just about clocking the market; it’s about aligning with your individual trading style and goals. If you’re someone who thrives in fast-paced environments, then trading in the high-volatility windows might suit you. This involves the first and last hours of the trading day when prices can change rapidly, offering opportunities for quick profits (and losses).

Alternatively, if you prefer a more measured approach, focusing on midday trading when the market is less volatile could be more your speed. This period often requires a different set of strategies, such as looking for small, consistent gains rather than big moves. Remember, it’s not just about the market’s rhythm; it’s also about your personal comfort levels, risk tolerance, and financial goals.

For beginners, it’s advisable to start with smaller trades and lower leverage, gradually increasing your exposure as you gain experience. In my years of trading and teaching, I’ve seen many people rush in, only to be overwhelmed by the pace and complexity of the market. Start slow, build your skills, and remember, in trading, patience often pays.

Identifying Your Trading Style

Your trading style, whether it’s scalping, momentum trading, or another method, will influence the best time frame for you. Each style has its nuances and requires different time frames to be effective.

Understanding Market Hours

Knowing the market hours is crucial. For instance, trading during the opening hours might offer the best opportunities for momentum traders, while the closing hours might be better for those looking to capitalize on the day’s overall trends.

Analyzing Liquidity and Volatility

Liquidity and volatility vary throughout the trading day. High liquidity times can offer more opportunities but also more competition, while high volatility periods can offer great profit potential but also higher risk.

Comparing Intraday Time Frames

Each intraday time frame provides a different view of the market. For example, a 1-minute chart can be ideal for a scalper, while a 15-minute chart might be better for a swing trader.

Aligning with Economic Releases

Economic releases can cause significant market movements. Aligning your trading times with these releases can be beneficial, but it requires understanding how different types of news impact the market.

Utilizing Multiple Time Frame Analysis

Using multiple time frames in your analysis can give a more comprehensive understanding of market trends and help in making more informed decisions.

Key Takeaways

  • The best times for day trading are typically the first hour after the markets open and the last hour before they close, due to higher volatility and volume.
  • Employing a solid trading strategy that matches your style is crucial. Whether it’s trend following, scalping, swing trading or others, your approach should be well-researched and practiced.
  • Choosing the right time frame for trading depends on your personal trading style, risk tolerance, and financial goals. It’s important to find a balance that works for you.
  • Start with small trades and lower leverage, especially if you’re new to day trading. Build your skills gradually to navigate the complexities of the market more effectively.

Trading isn’t rocket science. It’s a skill you build and work on like any other. Trading has changed my life, and I think this way of life should be open to more people…

I’ve built my Trading Challenge to pass on the things I had to learn for myself. It’s the kind of community that I wish I had when I was starting out.

We don’t accept everyone. If you’re up for the challenge — I want to hear from you.

Apply to the Trading Challenge here.

Trading is a battlefield. The more knowledge you have, the better prepared you’ll be.

What’s your experience in day trading? Let me know in the comments — I love hearing from my readers!

Frequently Asked Questions

What Happens If I Place a Market Order for Stocks After Hours?

If you place a market order for stocks after hours, it will be executed at the opening price of the next trading day. This can lead to unexpected results due to price changes overnight.

What Is the Rule of Three in Day Trading?

The ‘rule of three’ in day trading is a pattern that suggests a security will move in a particular direction after three consecutive sessions of moving in the opposite direction. It’s used to predict reversals.

What Is the 10am rule in stocks?

The 10am rule suggests waiting until after 10am to make any significant trades. This rule is based on the idea that the market tends to stabilize after the first half-hour of trading, allowing for more predictable trading conditions.

Should I Use Multiple Timeframes in My Trading?

Using multiple timeframes in trading can provide a more comprehensive view of the market, helping you to make more informed decisions. It allows you to see both short-term price movements and longer-term trends.

Can I Use A Credit Card To Finance My Day Trading Account?

While it’s technically possible to use a credit card to fund a day trading account with some brokers, it’s generally not advisable. Financing investments with credit cards introduces additional risks and costs, such as high-interest rates and potential debt accumulation.

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Timothy Sykes

Tim Sykes is a penny stock trader and teacher who became a self-made millionaire by the age of 22 by trading $12,415 of bar mitzvah money. After becoming disenchanted with the hedge fund world, he established the Tim Sykes Trading Challenge to teach aspiring traders how to follow his trading strategies. He’s been featured in a variety of media outlets including CNN, Larry King, Steve Harvey, Forbes, Men’s Journal, and more. He’s also an active philanthropist and environmental activist, a co-founder of Karmagawa, and has donated millions of dollars to charity. Read More

* Results are not typical and will vary from person to person. Making money trading stocks takes time, dedication, and hard work. There are inherent risks involved with investing in the stock market, including the loss of your investment. Past performance in the market is not indicative of future results. Any investment is at your own risk. See Terms of Service here

The available research on day trading suggests that most active traders lose money. Fees and overtrading are major contributors to these losses.

A 2000 study called “Trading is Hazardous to Your Wealth: The Common Stock Investment Performance of Individual Investors” evaluated 66,465 U.S. households that held stocks from 1991 to 1996. The households that traded most averaged an 11.4% annual return during a period where the overall market gained 17.9%. These lower returns were attributed to overconfidence.

A 2014 paper (revised 2019) titled “Learning Fast or Slow?” analyzed the complete transaction history of the Taiwan Stock Exchange between 1992 and 2006. It looked at the ongoing performance of day traders in this sample, and found that 97% of day traders can expect to lose money from trading, and more than 90% of all day trading volume can be traced to investors who predictably lose money. Additionally, it tied the behavior of gamblers and drivers who get more speeding tickets to overtrading, and cited studies showing that legalized gambling has an inverse effect on trading volume.

A 2019 research study (revised 2020) called “Day Trading for a Living?” observed 19,646 Brazilian futures contract traders who started day trading from 2013 to 2015, and recorded two years of their trading activity. The study authors found that 97% of traders with more than 300 days actively trading lost money, and only 1.1% earned more than the Brazilian minimum wage ($16 USD per day). They hypothesized that the greater returns shown in previous studies did not differentiate between frequent day traders and those who traded rarely, and that more frequent trading activity decreases the chance of profitability.

These studies show the wide variance of the available data on day trading profitability. One thing that seems clear from the research is that most day traders lose money .

Millionaire Media 66 W Flagler St. Ste. 900 Miami, FL 33130 United States (888) 878-3621 This is for information purposes only as Millionaire Media LLC nor Timothy Sykes is registered as a securities broker-dealer or an investment adviser. No information herein is intended as securities brokerage, investment, tax, accounting or legal advice, as an offer or solicitation of an offer to sell or buy, or as an endorsement, recommendation or sponsorship of any company, security or fund. Millionaire Media LLC and Timothy Sykes cannot and does not assess, verify or guarantee the adequacy, accuracy or completeness of any information, the suitability or profitability of any particular investment, or the potential value of any investment or informational source. The reader bears responsibility for his/her own investment research and decisions, should seek the advice of a qualified securities professional before making any investment, and investigate and fully understand any and all risks before investing. Millionaire Media LLC and Timothy Sykes in no way warrants the solvency, financial condition, or investment advisability of any of the securities mentioned in communications or websites. In addition, Millionaire Media LLC and Timothy Sykes accepts no liability whatsoever for any direct or consequential loss arising from any use of this information. This information is not intended to be used as the sole basis of any investment decision, nor should it be construed as advice designed to meet the investment needs of any particular investor. Past performance is not necessarily indicative of future returns.

Citations for Disclaimer

Barber, Brad M. and Odean, Terrance, Trading is Hazardous to Your Wealth: The Common Stock Investment Performance of Individual Investors. Available at SSRN: “Day Trading for a Living?”

Barber, Brad M. and Lee, Yi-Tsung and Liu, Yu-Jane and Odean, Terrance and Zhang, Ke, Learning Fast or Slow? (May 28, 2019). Forthcoming: Review of Asset Pricing Studies, Available at SSRN: “https://ssrn.com/abstract=2535636”

Chague, Fernando and De-Losso, Rodrigo and Giovannetti, Bruno, Day Trading for a Living? (June 11, 2020). Available at SSRN: “https://ssrn.com/abstract=3423101”