What Is The Best Time To Buy A Stock?

What Is The Best Time To Buy A Stock? Timing is essential to be a successful day trader, with hourly, daily and weekly decisions often the difference between a profitable trade or a losing position.

And, while many traders will be well versed in all the technical aspects of their craft, few have considered that the time of day, week or year that they make an investment can also have a critical impact on the outcome of their trades.

So, let’s take a look to see what factors influence the best, and worst times to enter the financial markets.

What Is The Best Day Of The Week To Buy A Stock?

Many investors believe in something known as the Monday Effect. This is the theory that market prices are depressed when stock trading resumes on a Monday morning after the weekend break. 

There are plenty of explanations for this, including a loss of optimism from the previous week, increased short selling, and the tendency for companies to present bad news once markets cease trading on a Friday afternoon.

Whatever the reason, and regardless of whether the phenomenon is real or not, you might be better hedging your bets by making sure you make your share purchases on a Monday – just on the off-chance that you do bag yourself a bargain.

What Is The Worst Day To Buy A Stock?

As Sir Isaac Newton once observed, that for all actions, there is also an equal and opposite reaction. And just as the markets tend to open lower at the beginning of the week, there’s also a belief that that they tend to close higher at the end.

Because of this, investors could probably shy away from taking long positions on a Friday, and instead look for short or hedged opportunities – or just sit it out until the markets open again on Monday morning.

Keep in mind some of the biggest selloffs in stock market history took place on a Monday, such as Black Monday in 1987. If you were a day trader you waited until Monday to buy you’d have missed the majority of the plunge.

What Is The Best Month To Buy A Stock?

There’s a general feeling that there is a seasonality to the stock market, and that certain months offer better opportunities for buying stock rather than others.

For instance, many traders will tend to sell-off poorly performing stock in the last few weeks of the year, so as to register capital losses on their tax return. This presents a buying opportunity for investors, as the large selling volume depresses the share’s value, and lets a trader open a position at a heavily discounted price.

The best month of the year historically to buy stocks is December with November a close second. Want to profit from market strength due to seasonality, buy on Oct 31 and enjoy the holiday ride seems to be the rule of thumb if historical patterns were to repeat.

Another month you might consider buying shares is in January. As the theory goes, the January Effect causes an increase in stock prices right after the dip of December’s end-of-year sell-off. Investors are likely to get back into the market with renewed optimism, and so drive up prices.

What Is The Worst Month To Buy A Stock?

Just as seasonality offers good buying opportunities for the savvy investor throughout the year, it also means that there are certain times when you should hold back on purchasing stock too.

There’s also a more general trend from May to October of weakness, with September historically displaying the worst performance over many decades. Sell in May and Stay Away is a saying for a reason; the data backs up the performance. 

This phenomenon generally applies more to securities that have less liquidity, such as small caps and assets that are not as heavily traded.

What Is The Best Time Of Day To Buy A Stock?

Variations in intra-day trading volumes present plenty of options for investors, and how you capitalize on these will depend on your level of trading experience and your unique trading style.

For advanced traders, and those with a high tolerance for risk, the first and last hour of the trading day is usually best. It is here that you’ll see wild price action, high volatility, and larger than normal trading volume. 

At the beginning of the day, as the market is consolidating and reacting to overnight news and events, investors will be witness to some of the largest swings in price, with quick reversals, counter-moves, and pull-backs galore. This is great for experienced traders – and it’s here that those of you with a skilled eye for the patterns and trends that occur during this time to make your most profitable trades.

However, for those less prepared for this kind of volatility, trading at this time can be risky. It’s better for those with less experience to trade positions during the middle-segment of the day, when price moves are more predictable, and volumes remain pretty stable.

Finally, the last hour of the trading day is similar to the first in volatility. Many traders will be closing out their winning trades, while others will try to salvage a poor day by catching a big market move one way or the other. Again, this is the territory of the experienced trader, and newbies should avoid it at all costs.

What Is The Best Time To Buy A Stock?

It’s important to always remember, that whether you can take advantage of these patterns and abnormalities in the trading calendar will always depend on specific market conditions. Volatility and risk is an ever present danger in the financial markets, with stability and safety often more of an illusion than a concrete reality.

And while some proponents of efficient market theory would tell you that the features discussed here are quickly arbitraged into irrelevancy, some trends do appear to be real and repeat with more regularity than randomness would suggest – and it’s always worth watching out for them to catch the opportunity when they arise.

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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.