While no two days are exactly alike, and any given day can deviate from the tendency, if you are trading the US stock market indices you may notice certain times of the day where the markets goes quiet, reverses or gets more volatile. Here are some time-of-day tendencies in the US stock market. If there are news releases scheduled, the news may have a significant impact and therefore may disrupt the time of day tendencies. Tendencies are something to keep in the back of your mind, but should not be traded in isolation, rather used in conjunction with well tested strategies.
Times are estimates, not exact.
9:30 AM EST – The open and likely to cause an initial thrust in one direction.
9:45 AM EST – Typically see some sort of reversal. This one is typically smaller causing only a short-term shift.
10:00 AM EST – Likely to be a stronger reversal point.
11:30 AM EST – Europe closes and the market either slows down a bit heading into the US lunch hour, or it may approach short-term highs or lows depending on if European traders are pinched to close out positions.
12:00 to 1:00/1:30 PM EST – Lunch time in New York and typically there is a slow down. The market is likely to move away from a high or low point.
1:30 to 2:00 PM EST – Following the lunch hour the market will often try to push in the same direction it was moving before the lunch hour, although this shouldn’t be anticipated. If the market has been range bound, look for a breakout around this time.
2:00: 2:45 PM EST – Many traders expect the market to close in the same direction the market is moving during this timeframe. Something to keep in mind, but usually there will be a few more strong moves or an inflection to shake traders outs.
3:00 PM EST – Another reversal point. If the prior trend is going to sustain itself into the close, this will be the inflection that shakes outs a lot of traders who are holding into the close. If the market does reverse though, there is likely to be a very strong move in the opposite direction as those that bet on the direction of the close an hour or so before will be trapped and have to get out.
3:30 PM EST – Last hour is the second most volatile of the day (first hour is usually most volatile). There can be sharp moves as traders scramble to close out positions before the end of the day.
4:00 PM EST – Close.
December 09, 2013 was a no-news-day, and stuck to the tendencies pretty well.
Figure 1: S&P 500 Time of Day Tendencies – 2 Minute Chart
These are time based estimates and tendencies, not exact times or cycles. Any day can deviate from the tendencies. The information can be used in different ways. For example, if a trend appears to be slowing down right near a typical reversal time, maybe don’t take the trend trade. If you see a sharp reversal right near a typical reversal time, don’t try to fade it. These are only examples, make your own rules for how you will use (or not use) this information in your own trading plan.