Whether you are a newcomer or an experienced hand, the eternal question in trading is always - what is the best time to buy (or sell) stocks? While many deny it, some basic rules minimize your risks and offer you a higher chance of profit. Here are 4 simple recommendations on the right time to invest in stocks.
The Best Time of Day
This is most applicable to intraday traders who buy and sell their stocks and make their profits within the trading hours on a single day. Logically, it may seem tedious to watch the market throughout the trading hours for an opportunity to buy or sell. However, this is not true for the following reasons:
- Too many hours watching charts and graphs causes mental fatigue and confusion.
- The volatility drops after the first 90 minutes.
- The volume in which stocks are traded might also drop after the first 90 minutes.
- You will face seasoned traders whose moves might leave you flustered. Experienced traders are looking to manipulate rates and turn graphs around - this is no time for a beginner to experiment.
With all these factors taken into consideration, the best time of day to trade is 9:30 to 10:30 am. The stock market opens for trading at 9:15 AM and in the first 15 minutes, the market is still responding to the previous day's news with experienced traders waiting to make their move. As a result, that first 15-minute slot is best avoided. If you prefer more time to make your observations to make a more informed decision, stretch your trading time to a maximum of 11 am.
The Most Lucrative Day
Many forums will tell you that Monday is the best day to buy stocks, while Friday is the best day to sell stocks. The logic behind this advice is that stock prices are said to be at the lowest on a Monday (meaning you will buy shares at a lower price). The same contention goes on to say that stock prices are at their highest on a Friday (meaning that you will sell at a higher price). However, if everyone played that game then there would be no sellers on a Monday- everyone would only want to buy. Similarly, there would be no buyers on a Friday because all traders would only want to sell. This would mess with demand-supply economics. There is no such thing as a standard best day of the week.
The Most Favourable Conditions
The best time to buy stocks is when the share prices of a given stock are at a low. There is always a chance that they will drop even further, but buying at a low price is significantly safer than buying at a high price where the price of the stock is unlikely to climb much higher. Instead, prices may drop and you will end up having to sell at a loss. When you buy shares at a low price, they may drop further but there is a significantly higher chance that they will soon turn around and rise, giving you the chance to sell at a profit.
The best time to or to buy F&O contracts is when Open Interest, i.e. OI is low because it means that people are keen to sell and this usually means lower buy rates.
Other factors
Check the share prices of your chosen stock to know when is a good time to buy. An indicator called Moving Averages tells you the range of your stock price, which is the highest it ever rises and the lowest it ever falls, thereby helping you make a better decision. Additionally, watch for news related to your stock. Good news and dividend payouts can often result in a stock price rising.
Conclusion
It is safe to say that you must research and observe the charts, indicators and news around your preferred stocks. Avoid spending every single minute of every single day with your online trading account open on your screen. Watching the stock market and trying to cash in on every opportunity will end up being counter-productive. Be diligent in ensuring you are informed about the simple recommendations discussed in this article.
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