How To Trade The Stock Market Opening Bell

Now that electronic trading has made physical trading floors all but obsolete, the stock market’s opening bell is more symbolic than literal.

Sometimes, business leaders or VIPs are given the honor of ringing the opening bell – for example, on special occasions such as their company’s first day of public trading. Otherwise, the New York Stock Exchange uses an automated ringer, and the Nasdaq doesn’t have an actual bell at all. The term “opening bell” simply marks the 9:30am start of the trading session.

The opening bell wasn’t always figurative. When continuous trading first launched in the 1870s, the New York Stock Exchange relied on a Chinese gong to signal the precise moment the market was in session.

The goal was to ensure every trader started and ended the day at the same time. The Chinese gong was replaced by a brass bell in 1903 when the New York Stock Exchange moved to its current building, located between Wall Street and Exchange Place. Today, there are four bells that are synchronized to sound over the four NYSE trading areas. 

When the market’s opening bell sounds – whether literally or figuratively, certain patterns play out again and again. Investors who are familiar with those patterns can generate profit in the first 30 minutes of the trading day. Here’s what to look for before the opening bell and how to trade the stock market opening bell like an expert. 

What Are The Stock Market’s Busiest Times? 

The market is officially open between 9:30 am and 4 pm Eastern Time, but that doesn’t mean the trading world is completely still outside of those hours. Investors place orders around the clock, and all of those have to be processed when the trading day starts. 

More importantly, markets are open in other countries, and geopolitical events unfold no matter what time it is. In addition, individual companies deliberately release big news when the market is closed to give investors time to absorb the information before reacting. 

The combination of off-hours orders, activity in international markets, geopolitical events, and company-specific news means the first hour of trading is especially busy. Depending on the type of trades you are considering, your biggest moves might be made in the first five to 15 minutes of the session. That is referred to as trading the open. 

Strategies To Trade The Open

There are no guarantees when it comes to market behavior, and historical patterns only show what is likely to happen – not what will happen. With that said, based on long-term data, some bets are consistent winners. These are two of the strategies experienced investors use to trade the stock market opening bell. 

Fading The Gap 

Big news before the market opens means gaps are a strong possibility. Large numbers of buy or sell trades must be processed at the opening bell, which causes the stock to open much higher or lower than the previous day’s close. 

Generally, when negative news causes stocks to gap lower, prices continue to fall for the first five to ten minutes of trading. Conversely, when positive news causes stocks to gap higher, prices continue to rise at the stock market opening bell. 

After this initial period, most gaps are filled, sending prices in the opposite direction. In many cases, that reversal takes place within the 20 minutes between 9:40 am and 10 am. Skilled traders who are prepared to make decisive moves within a compressed time frame can take advantage of this pattern. 

Fading the opening gap is one strategy designed to make the most of typical market behavior. Basically, the strategy works through selecting gaps that have a high probability of being filled – roughly between 0.5 and 1.5 percent. At this level, there isn’t a lot of energy behind the price increase or drop, so there is a strong chance the gap will be filled – particularly if trading volume is on the lighter side. 

These types of gaps occur relatively frequently. The trick is spotting them as soon as the market opens, if not before. If trading long, make the buy after the stock gaps down. If it is a short trade, enter the order after the stock gaps up. 

The most critical element of this strategy is ensuring your losses are minimized if things don’t go your way. That can be accomplished with a stop loss – ideally, around half the amount of the gap. With such a stop, the risk to return ratio comes in at a reasonable 1:2. When the price is on par with the previous day’s close, you have hit your target. 

Gap and Go 

Another popular strategy for trading the stock market open is referred to as “Gap and Go.” This strategy also takes advantage of gapping, but it carries more risk – and therefore, potential rewards are significantly higher. 

In this case, you aren’t looking for gaps with minimal momentum behind them. Instead, the goal is to find stocks with large gaps based on powerful events that occurred while the market was closed. 

Identifying the right stocks begins when three elements come together at the same time.

1. First, there is big news that will positively impact stock prices.
2. Second, pre-market trading volume is relatively high.
3. Third, the gap is trending up, and a clear gap is forming before the market opens – preferably between four and five percent. 

Once you have a list of stocks that fit these criteria, examine float – the total number of shares available to public investors. If float is low and demand is high, fast action at the stock market opening bell can lead to impressive returns. 

The Risks Of Trading The Open 

Gaps occur when something happens outside of market hours that impacts share prices. Earnings reports, geopolitical events, and economic news are common examples. In other words, gaps don’t occur naturally – there is always a catalyst. 

If you cannot determine why there is a gap, best not to attempt trading the open. The market is already unpredictable – lack of information makes the odds of placing a winning bet infinitely lower. 

Finally, understanding how to trade the stock market opening bell is one thing – successfully executing these trades to generate profit is another thing altogether. The first 30 – 60 minutes of trading are exceptionally volatile, and it takes a lot of experience to know just when to move in and out of a position. 

If you are just getting started with trading the open, practice on paper or digital simulators first. Over time, you will get a better sense of how to execute your trades based on how much your simulated transactions returned. Until you see more gains than losses, pass on putting real money into the market. 

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The author has no position in any of the stocks mentioned. Financhill has a disclosure policy. This post may contain affiliate links or links from our sponsors.