Do you know volume is not constant during a trading day of the stock market? Volume tends to be heavy during market opening and closing hours, and low during the mid-day. Visually, it is U-shape.
There are a few reasons why volume is heavy in the morning:
- overnight orders (orders that were made after the market closed the previous day – people who have a day job and cannot execute orders when market is open)
- investors reacting to news that are released before market open
- investors anticipating the movement for the day and taking up positions
- anxious investors waiting to place trades (trying to be the early bird that catches the worm)
There are a few reasons why volume is heavy nearing the close:
- intraday traders closing their trades
- institutions rushing to complete their large orders by end of the day
- traders taking up positions (some traders prefer to place trades near the close as the price more or less concludes for the day)
If you realised, most amateurs place trades during the morning rush and with varied expectations of the market, the range of prices is large and hence, volatility is high. The worst time to trade during the day is thus during market opening. It is very difficult to get a good price. It is better to wait for all the morning rush and euphoria to sudside before placing an entry. Please note that this distirbution of volume in a typical trading day may not always be true everytime. I just wanted to show you the characteristics and help you identify a good time to place your trades, based on which situation your trading system would thrive.
You may also like:
- Trading Report Card – Nov 09
- Handbook on Forex Trading by Nicholas Tan
- Trading Report Card – July 09
- Trading Report Card – Apr 09
- Trading Report Card – May 09
- Support and Resistance
- Review – Insight to a Professional Trading Career
- Blackjack and Trading
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- learn how professionals trade
- discover their strategies, money management and approach to the markets
- understand their stories and motivation behind trading
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{ 4 comments… read them below or add one }
I tend to sell in the morning, capitalising on the rush of investors, if it’s an up day. I tend to buy in the morning when it’s a down day.
But as you’ve said, different stocks have different characteristics. Some master trader spend their whole life trading only a handful of stocks/index to have a feel of it. I think we should do that too
I tend to sell in the morning, capitalising on the rush of investors, if it’s an up day. I tend to buy in the morning when it’s a down day.
But as you’ve said, different stocks have different characteristics. Some master trader spend their whole life trading only a handful of stocks/index to have a feel of it. I think we should do that too
Any method is good as long as it makes money!
Any method is good as long as it makes money!