Unlike long-term investing, trading often has a short-term focus, so choosing when to enter the market is crucial to the success of the trade.
Is there a better day of the week for buying stocks? Or a better day to sell stocks? Is there a better time of year to buy stocks? Or a better month to buy stocks or sell them? These are some of the questions that every trader, at least once in their life, has asked themselves. In this article we will try to clarify.
The most optimal moments of the day
For the markets as well "the early bird catches the worm": during the opening hours the market takes into account all the events and press releases since the previous closing, which contributes to the volatility of prices . An experienced trader might be able to recognize the appropriate patterns and make a quick profit on early trends, but a less experienced trader could suffer heavy losses as a result.
So, if you are a beginner, you may want to avoid trading during these volatile hours, or at least within the first hour.
Once volatility and volume tend to decrease, trades take longer and moves are smaller with less volume. As prices are relatively stable during this period, it is a good time for a beginner to trade, as the action is slower and returns may be more predictable.
In the last hours of the day, volatility and volume start to rise again. Indeed, common patterns of the intraday stock market show that the last hour can be like the first: sharp reversals and big moves, especially in the last few minutes of trading.
The "best" day of the week
Some traders argue that some days offer systematically better returns than others, but in the long run there is very little evidence of such an effect at the market level.
The most common contention is that the first day of the working week is the best. It is called “Monday effect” or “weekend effect”.
Historically, traders say the stock market tended to go down on Monday. Some people think this is due to the fact that a significant amount of bad news is often released during the weekend.
Others point to investors’ gloomy mood having to go back to work, which is particularly evident during the early hours of Monday trading.
While Monday may be the best day of the week to buy stocks, Friday may be the best day for selling stocks, before prices drop on Monday. If you are interested in short selling, Friday might be the best day to take a short position (if the shares are priced higher than Friday) and Monday would be the best day to hedge your short position.
Major equity markets close on Friday afternoons and may offer extended after-hours trading until Friday evening. Saturdays and Sundays, however, are often inaccessible for most traders.
What is the best month?
Historically, markets tend to have strong returns towards the end of the year, as well as during the summer months.
Based on the "January effect", at the beginning of the new year, stock prices experience a seasonal increase, due to investors returning to the stock markets aggressively, following the decline in stocks prices in December, the month when investors are believed to start selling stocks en masse at the end of the year, particularly those that have lost value, to claim capital losses on their tax returns.
However, as information on such potential anomalies makes its way through the market, the effects tend to disappear.
So, in terms of seasonality, the end of December proved to be a good time to buy small cap or value stocks, ready for the upside early next month. Another curiosity concerns the months of September and October, which is traditionally considered a negative month. The cause of the "September effect" seems to lie in the fact that institutional investors close their positions in the third quarter.
In conclusion
These tips for the best time of day to trade stocks, the best day of the week to buy or sell stocks, and the best month to buy or sell stocks are generalizations, of course. Exceptions and anomalies abound, depending on news events and changing market conditions. Historically, a few days or months have tended to be better or worse for stocks. These so-called market anomalies challenge efficient markets theories. However, research shows that as these anomalies became more known and trading became more automated, they largely disappeared.
Choosing the right broker is essential, XTB, for example, offers you the possibility to access a wide range of financial instruments, through a highly performing online trading platform, constantly updated. Through this broker, you can take advantage of quality educational materials to continuously improve your knowledge of the financial markets.
Any opinion, research, analysis, pricing or other information provided under the title of general market commentary does not constitute investment advice. Please note that historical information or research does not guarantee future performance or results.
Original article published on Money.it Italy 2022-11-04 10:30:00.
Original title: Qual è il momento migliore per fare trading sul mercato azionario?
