Having a successful trading career not only depends on the trading system or style that is used but also depends on other intangibles, such as day trading time zones. Understanding the market dynamics during different times of the day will take anyones trading to the next level. What a day trader must understand is that even if a chart has a great setup, the time at which the trade is placed may be in a day trading time zone which typically starts a counter trend move. For example, many traders who are day trading breakouts will be far more successful during the first two hours of the day than any other time frame during the day. Typically breakout attempts will fail and reverse which will only serve to frustrate the trader and cause you to doubt your approach to trading. Let’s now take a look at the different time zones and understand the general market dynamics during each time zone.
First 20 min period
The first 20 minutes of the day are the most volatile of the trading day. While this is the most dangerous day trading time zone, it can also provide to be the most lucrative if you have a strategy in this time frame. It is usually recommended that beginner traders stay out of this zone and wait for the imbalances created from overnight news or earnings releases to settle down. Many indicators do not work well in this time frame as the volatility is too strong. In most cases, volume will also be the highest of the day during this time.
The first reversal zone of the day begins at around 9:50am and lasts for about 20 minutes. Day traders need to pay close attention to this time frame. Many traders will put on continuation trades, or buy stocks which set new 30-minute highs and short stocks setting new 30-minute lows. Once the dust has settled from the opening, you will be able to more clearly see what the traders in this security will want to do.
During this day trading time zone (10-10:30), volatility shrinks again and you want to look for clues in the Dow, S&P, and Nasdaq as to the direction that the market wants to take. This is an opportunity for bigger traders to move the market the way they choose. Watch the news of the stocks that you track for any indications of direction. The market will be settled for the most part and most of the days volatility will have passed.
There may have been a few reversals in the first hour but during this small zone (10:30-10:45), many traders will cash out of profitable positions and finish the day while others will position themselves for the next move in the market.
Lunchtime trading (11:00am – 2:15pm) can be brutal. The risk to reward is very high here. Volume will fall out of the market as floor traders and other institutional traders will take their lunches Dont let this time zone turn profitable morning into a loss.
Way back zone
Traders will work their way back into the market during this time frame (2:00 – 3:00pm). For the most part, trends have been established and trading during this time frame will provide you with opportunities where the use of technical indicators is applicable. Remember, the CME closes at 3pm so you will see a pickup in volume due to some of the bond traders coming into the equity and futures markets. It could be tricky for traders to predict the market during the last half hour of the day. There are many funds and institutions re-balancing their portfolios. You need to understand who you are as a trader and trade accordingly.
As you can see, the chart setup or systems that you look at are not the only factor in putting a day trade on. Day trading is not absolute but it is a game of odds. Traders job is to put the odds in his favor and by utilizing the different day trading time zones that we have discussed, trading will become more consistent.
Here are the opening and closing times of stock markets all over the world:
NYSE – New York Stock Exchange 9:30 – 16:00
TSE – Tokyo Stock Exchange 9:00 – 11: 00; 12:30 – 15:00
LSE – London Stock Exchange 8:00 – 16:30
FWB – Frankfurt Stock Exchange 9:00 – 20:00
HKE Hong Kong Stock Exchange 9:30 – 16:00
NSE National Stock Exchange of India 9:00 – 15:30
ASX Australian Securities Exchange 10:00 – 16:00
RTS Russian Trading System 10:30 – 18:00
JSE Johannesburg Stock Exchange 9:00 – 17:00
DIFX NASDAQ Dubai 9:00 – 14:00
BM&F, BOVESPA – Bolsa de Valores, Mercadorias & Futuros de Sao Paolo 10:00 – 17:00