STREET DOGS

Unlike traditional investing, trading has a short-term focus. Analysis may be broken down to days, hours and even minutes. Because trading focuses on such short time frames, the time of day in which a trade is made can be an important factor to consider.

Buying and selling by individual investors is especially heavy in the minutes immediately after the market opens, when all of the news releases since the previous close are being factored into the action. It’s a time when the chances of getting the best price for a stock are lower and swings tend to be bigger. A skilled trader may be able to recognise the appropriate patterns and make a quick profit, but a less skilled trader could suffer serious losses as a result of this volatility.

“The overall cost to trade is lower, and the risk of getting a bad trade is lower, if you wait 30 minutes after the market opens,” says Scott Kubie at CLS Investments. “After the first halfhour whatever orders had been pushed in from the night before are done, the gap between the bid and ask prices narrows and big swings abate.”

The smaller gap, or spread, is better for investors because they are less likely to overpay for a stock or sell below the prevailing price in the market.

According to Credit Suisse, more than 13% of all trading in the US stock market last year took place between 9.30am and 10am, a figure that has held steady for the past five years. The opening 10 minutes accounted for nearly 5% of volumes. About 15% of average daily trading volume is driven by individual investors.

Stock-trading volumes in general tend to be clustered near the market open and close, but large institutional investors tend to congregate towards the end of the day, says the Wall Street Journal.