Time of Day Tendencies for the US Stock Market

Time of Day Tendencies for the US Stock Market

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, 2020 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.

Common Intra-Day Stock Market Patterns

When day trading the US stock market you may notice certain patterns, based on the time of day, that occur more often than not. These patterns, or tendencies, happen often enough for professional day traders to base their trading around them.

One tendency is that the stock market can become less volatile, flatten out, and see less volume in and around the New York lunch hour. Many day traders stop trading about half an hour to an hour before this slowdown kicks in and don’t trade again until well after the lunch hour when volatility and volume pick up again.

Other Common Tendencies

All times listed here are Eastern Standard Time. Other than the open and close times (9:30 a.m. and 4 p.m.), the times listed are approximate.

9:30 a.m.: The stock market opens, and there is an initial push in one direction (it may take a couple minutes to get going).

9:45 a.m.: The initial push often sees a significant reversal or pullback. This is often just a short-term shift, and then the original trending direction re-asserts itself.

10:00 a.m.: If the trend that began at 9:30 a.m. is still in play, it will often be challenged around this time. This tends to be another time where there is a significant reversal or pullback

11:15–11:30 a.m.: The market is heading into the lunch hour, and London is getting ready to close. This is when volatility will typically die out for a couple hours, but often the daily high or low will be tested around this time. European traders usually close out positions or accumulate a position before they finish for the day. Whether the highs or lows are tested or not, the market tends to “drift” for the next hour or more.

11:45 a.m.–1:30 p.m.: This is lunch time in New York, plus a bit of a time buffer. Usually, this is the quietest time of the day, and often, day traders like to avoid it.

1:30–2:00 p.m.: If the lunch hour was calm, then expect a breakout of the range established during lunch hour. Often, the market will try to move in the direction it was trading in before the lunch hour doldrums set in.

2:00–2:45 p.m.: The close is getting closer, and many traders are trading with the trend thinking it will continue into the close. That may happen, but expect some sharp reversals around this time, because on the flip side, many traders are quicker to take profits or move their trailing stops closer to the current price.

3:00 and 3:30 p.m.: These are big “shakeout” points, in that they will force many traders out of their positions. If a reversal of the prior trend occurs around this time, then the price is likely to move very strongly in the opposite direction. Even if the prior trend does sustain itself through these periods, expect some quick and sizable counter-trend moves.

As a day trader, it is best to be nimble and not get tied to one position or one direction. It can be very hard to hold a trade for very long between 3 p.m. and the close.

The last hour of trading is the second most volatile hour of the trading day. Many day traders only trade the first hour and last hour of the trading day.

3:58–4 p.m.: The market closes at 4 p.m. After that, liquidity dries up in nearly all stocks and ETFs, except for the very active ones. It’s common to close all positions a minute or more before the closing bell, unless you have orders placed to close your position on a closing auction or “cross.”

Considerations

Big news events can throw a wrench in these tendencies, resulting in big trends, reversals or movement through the lunch hour or other times that would be uncommon without some sort of external catalyst.

The times provided are estimates only, and therefore can only be incorporated into a trading strategy if you adequately test them. The tendencies should never be used as a strategy or trade signal on their own.

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