What is the best time of day to buy a stock to get the lowest possible price? Often I put in trades before I go to sleep at night and they are executed seconds after the stock market opens. Is this the best time of day to put in a trade? Actually, if you are an investor it does not matter unless there is some news that comes out before the opening bell. However, if you want that extra edge, the best time of day to buy a stock is about 3:20 in the afternoon. However, do not take my advice. Read on.
Why the best time to buy a stock is before the market closes
I am not a day trader and I am not giving any advice. However, when I personally want to try to statistically maximize my price I try for 3:20 in the afternoon. I think this is best because this is the time when day traders clear their positions. The stock market is open at 9:30 am and closes at 4:00 pm. Day traders are most active in the morning and the afternoon. When the market approaches close many clear their positions to go home or rebalance their portfolios. They do not wait for 4 pm for various reasons. Most day traders do not want to have the risk of holding a position after the close because news or price changes overnight can not be controlled. They are in the game of just watching the trend and making money off of it during the day. In fact, the last half hour of trading can be often an uptick and is not always the best price.
Similarly, people sell stocks near the end of the year as they want to clear their bad positions for tax purposes. There is something called the incredible January effect, that is when people are looking to a new year to rebalance their portfolio they buy.
Why rules do not apply anymore
These buying tactics are not really that effective anymore. Why? Once someone knows about it, expectations and people trying to use the tactic defuse the effectiveness.
Further, what if you want to buy a stock that is in a strong upward trend, even waiting until the end of the day could give you a price that will be more than you bought it for.
Stock programs that look at intra-day trends
There are stock trading software programs that actually look at the trend and the volume of a stock price during the day. I am not a day trader so I do not use these. They look at not the time of day, but the turning points supported by an increase in volume. If it does not have the volume as confirmation, the price could fall in the next hour. Being a stock trader is trying to statistically optimize your returns based on known patterns.
However, tempting and interesting the idea is, I do not use this trading tactic. Why? I would rather spend my time doing other things like looking for the next home run stock based on a quantitive system of valuation, then trying to squeak that marginal intraday advantage. However, if that is something you want to do, do not let me stop you.
Further, if you have had experience with any of this, please I would be interested in your input about the optimal time of day to purchase equity on the stock market.