Modern stock trading can be done through the Internet. Traders buy or sell stocks for profit. Here are a few vital tips to identify the best timing.
Stocks have been popular for decades, and now they can be traded remotely through the Internet. Through a broker in South Africa, one can buy or sell shares effortlessly. Generally, stock trading brings returns based on short-term moves – just like Forex trading. But do any universal rules of timing exist?
Day Trading Tips
As soon as the market opens, volatility kicks in. The frenzy of the opening hours, especially 9:30 –10:30 a.m. ET, is used by experienced traders for quick gains, but rookies are advised against joining in. The first hours are when the market is most affected by all the finance news accumulated since the previous closing bell.
Many professional traders wrap up their activity for the day around 11:30 a.m. This is when volatility fades and volumes contract. Trades require more time. In the middle of the day, markets are the calmest as traders and investors await further news to act on. Prices for stocks are the steadiest, which means newbies can open positions with the lowest risk involved. Then, activity is ramped up again.
During the closing hours, both volumes and volatility grow. Sometimes, the dynamics can be just as wild as right after the opening. By 4 p.m., day traders tend to close their positions. Alternatively, they engage in late-day rallies.
Buying on Monday
Despite evidence to the contrary, some traders firmly believe in the Monday effect. Historically, drops were often observed on the first day of the week when news accumulated over the weekend swayed the market. Other interpretations included players’ frustration at having to go back to work. This was especially strong in the early hours.
However, since the Monday effect got its name and was extensively covered by experts, its power has largely vanished. Nowadays, it is rarely significant. Still, it is worth considering Monday as your day for buying stocks. You can snap a bargain.
Selling on Friday
This day is preferable for short-sellers, as prices are expected to drop on Monday. Hence, it is advisable to open a short position on Friday and cover it on Monday. This is especially pronounced before long holiday weekends as investors are feeling positive about the short-term future. As a consequence, prices go up.
Which Month Is Best?
Here, there are several patterns observed. In general, you are likely to see higher returns on the exchange:
- close to the end of the year,
- during the summer months.
Usually, September brings or reinforces downtrends. Statistically, October has seen favorable dynamics for the S&P 500, even though twice – in 1929 and 1987 – record collapses occurred.
This means traders may enter the market in the first month of the fall and capitalize on their decision in October. However, this is not the only opportunity. The January Effect is also real, even though the strength has been diminished by information about it.
In the first days of each year, stock markets usually see a bump-up. Thus, it is logical to buy stocks in December in anticipation of January returns. This is most visible for small-cap and value stocks.
The second benefit of buying in January is the sheer volumes of equity released. Many holders of stocks tend to sell them in bulk. In particular, stocks whose value has declined are likely to be sold off. The move is linked to the tax return period – investors need to claim capital losses.
Best Day of the Month to Invest
Unfortunately, no day of the month is universally perfect. However, there are some regularities observed. Often, you can see stocks fall in the middle of the month and grow when months change. The primary driver here is fresh money flows into mutual funds, which occur at the turn of the month. Fund managers also try to improve their quarterly balance sheets with new stocks that have seen positive dynamics over the period.
The logical conclusion is to time stock purchase around the middle of the month, e.g., between the 10th to the 15th. For selling, the most favorable time could be within 5 days around the turn of the month.
Seizing Best Moments
None of these suggestions is a universal recipe for investing. They are only generalizations, which means exceptions are always possible. There is no absolutely perfect time, day, or month to adjust your stock portfolio. Unexpected economic or political events may disrupt any outlined patterns.
The most reliable rule concerns the first and the last hours of every trading day. These are the busiest and thus offer more opportunities for successful trading. Still, many traders make profitable sales and purchases in the off-times. No matter what patterns are observed, once information about them is public, they lose strength. Therefore, any such opportunities are short-lived in general.