Time-of-Day Stock Market Patterns – When Prices Tend to Trend and Reverse
The stock market has time-based tendencies throughout the day. These intraday patterns have been playing out for years. The tendencies let us know at what time (area) the trend typically reverses, or at least tends to have a significant pullback, so we can be on the lookout for that. The time of day patterns also let us know when volatility tends to increase and subside, which affects the quality of the trading opportunities during those periods.
Time of Day Stock Market Patterns
Intraday stock market patterns are only tendencies. Like most things in trading, they don’t work every single day. That said, they don’t need to. Since these patterns and tendencies do occur often, they still aid in making trading decisions most days. They are not be relied on exclusively; if you find these time-based patterns useful then incorporate them into your current stock trading strategies.
I have noted several time-of-day stock market patterns, mainly related to changing volatility and price reversals/significant corrections.
One that most day traders have probably noticed is that volatility shrinks and stocks typically have less movement during the New York lunch hour, when compared to other times of the day. While some days may have big movement during the lunch hour, the more common tendency is for volatility to drop off and for the price to flatten out instead of having a strong trend.
Even this simple pattern can aid us in trading. When I first started day trading fulltime in 2005, I traded the entire day. I love it and wanted to do as much as I could. I traded right through the lunch hour and never thought anything of it. Over time I noticed that I tended to lose money during the lunch hour. I would make money in the morning, lose a bit during lunch, and then make money heading into the close. I looked at my profits by time-of-day (many brokers/platforms offer this function) and found that during lunch hour I was consistently losing at least 20% of what I had made in the morning.
The lunch “hour” actually ended up being a 2-hour window, from 11:30 am to 1:30 pm ET. I also found that I typically made that money back toward the close. For example, make $1000 in the morning, lose $200 during the 2-hour lunch window, come back and make $300 to finish the day at $1100.
By simply noticing this tendency, and realizing it is because the middle of the day tends to be dead with few tradable trends, a trader could eliminate trading during this time. They could opt to only trade the morning, or if they want a bit more action, trade the opening 2 hours and the closing 2 hours.
You may find something else in your trading statistics that you can use to improve. But the lunch hour(s) is a big one. See how altering your trading around the lunch hours would affect your overall results.
Certain tendencies occur throughout the day, though, not just at lunch hour. Let’s look at the rest of these intraday stock patterns.
If you find that you consistently make profitable or losing trades around the times listed below, but weren’t quite sure why, these intraday stock patterns may have something to do with it.
Intraday Stock Patterns by Time of Day
Here are the tendencies for US stocks, broken down in sequential order for the typical trading day.
The times are approximate, meaning don’t expect a reversal/pullback every day at the exact same time. What I am saying is that reversals/significant pullbacks are common AROUND that time.
All times are Eastern Standard, with the open occurring at 9:30 am and the close at 4 pm.
These tendencies are based on index movement, which is like an average of many stocks. Individual stocks may have slight differences. Note the specific time patterns in the stocks you personal trade, then use those tendencies to your advantage.
9:30 am – The stock market opens and there is typically a push in one direction or the other (time-based patterns don’t care about direction, and neither do we, because we can trade in either direction). The price may also whipsaw back and forth a couple times, although usually one direction prevails.
If there is a very little movement in the first 15 minutes, it is likely to be a slow day overall; wait for a big move to happen before trying to day trade days like that.
The first hour is the most volatile of the day, followed by the last hour of the day.
9:45 am – Whatever dominant direction the price initially moved in, around 9:40 to 9:45 is usually the first big test. There is either a significant pullback or the trend completely reverses. Watch the strength of the pullback as this will help assess whether the morning trend is likely to reassert itself, or if a full reversal is in effect.
10 am to 10:30 am – This is another “gut check” time for the trend. Between 10 and 10:30 am there is usually another major correction against the recent trend. This may be a pullback or a full reversal. Look at the overall context of the price movements and compare their strength to help assess what to do.
11:15 to 11:30 am – London closes at 11:30 am ET. Between 11:15 and 11:30 European traders are getting out of positions, so a new high or low is often created during this time, or the current daily high or low is tested (price nears it). These are typically the last big moves before the price settles down for the lunch hour.
Use a Finviz Elite subscription to see what is moving aggressively in the pre-market and during the day, look for stocks that are gapping pre-market, and run technical filters for stocks breaking out of ranges or other chart patterns.
11:30 am to 1:30 pm – The lunch hours. Typically a quiet time. I don’t trade during this time. Since I am mostly a trend trader, and trends are usually weak or non-existent during this time, it is better for me to stay away. Breakouts during this time have a greater chance of failing, or just not going anywhere.
Not all lunch hours are quiet. If there is lots of movement, that means traders are interested in what is going on and overall volatility and movement is likely higher than usual. In this case, analyze the lunch hour as you would any other important time of day. If the lunch hours are quiet, there is no need to analyze the movement.
1:30 to 2 pm – This is when trends are more likely to reassert themselves. Watch for breakouts from the lunchtime doldrums. If the lunch hour was active and trending, use that information and continue trading accordingly.
2 to 2:45 pm – Between 2 and 2:45 isn’t so much a specific time or event to watch for, rather it is a time to be wary. By that I mean, trade trends, but keep stop losses close or trailing because reversals during this time are typically very quick. It is getting close to the end of the day and institutions are shuffling for their position (or lack of) heading into the close.
3 to 3:30 pm – Like the prior time frame, nice tradable trending moves occur in this window, but have strict profit targets or a tight trailing stop loss. The trend can swiftly change with little warning as traders panic and greed their way into the close. This period often has a “shakeout.” The people who were hoping to ride a nice trend into the close are jarred out of their position by sharp counter-trend moves. The trend may reassert itself, or not. As day traders we can often flip positions during this time, making money on the prior trend and the swift new one.
The last hour of the day is the second most volatile next to the opening hour. That means big opportunities, but big risk if you are not on your toes.
3:55 to 4 pm – Unless you have a very specific strategy for trading the last few minutes of the day, close out day trading positions 3 to 5 minutes before the close. Moves in the last few minutes can be erratic. If trading during this time, have a strategy that is based on data and statistics specific to this few minutes of day.
US markets have a closing auction, where traders who put in auction orders get executed in one transaction at 4 pm. Depending on how many buyers relative to sellers there are, the auction price can vary significantly from the price the stock traded at just a few seconds before. This jockeying for shares, combined with the changing value of the likely auction price, can create extreme moves as all shares may get swiped for several (or many) price levels one way or the other. Combined with there usually being little volume to get out of trades after the closing bell (in most stocks), unless you have a good exit strategy during this time, you shouldn’t be trading.
Variations in Time-of-Day Stock Patterns
Individual stocks may have their own patterns. I typically only day trade one stock for weeks or months. This allows me to see how a stock moves and note any tendencies it has. Trading it every day I can monitor how those tendencies change, and whether the stock is still worth trading. The above tendencies will apply to many stocks, but not all.
On days where there is significant news, these patterns may not apply. For example, when the FOMC has an interest rate announcement scheduled, the mornings may have a bit of action but then the rest of the day is dead until the announcement comes out. Once the announcement is made, there is lots of volatility into the close.
Also, when markets are on a high alert and more volatile overall–like following, or during, a strong downward move–then the lunch hour isn’t usually as quiet. There is a strong trend and volatility tends to persist for significant chunks of the day. Reversals during volatile times are also typically very strong, taking many day traders by surprise (even reversals that go against the longer-term trend). Movement overall is elevated as emotions are running high.
Around the Christmas holiday season, trading is usually slow, volume is low, and the price meanders. I have learned to avoid trading during this time. The tendencies discussed above, and many strategies, don’t work when volume is very low and price movements are meandering as opposed to moving with conviction.
Only use this data if you find it useful and profitable in your trading. I have found it quite useful over the years, especially trading that first 2 hours of the day.
I started noting these patterns back in about 2006. Over time they have not changed.
This chart is from 2013, when I wrote a prior article on this topic. It is the S&P 500 Index.
Below is another example from April 4, 2019. On this day there was a strong overall trend, yet the tendencies still held. Remember, the time-based tendencies aren’t telling us what direction to trade in. That is up to our analysis and strategies. The time patterns just let us know when big corrections/reversals tend to occur, for example.
This chart is of the SPDR S&P 500 ETF (SPY), which is popular among day traders.
Below is another example, April 3. There were several trends during this day, providing opportunities to go both long and short at different times.
We don’t know exactly what will happen, but we do have some ballpark times where significant things tend to happen. On the chart above we had a significant reversal near 10:30, whereas on the chart prior, the price pulled back into 10:30 but then continued on its current trend. Each day the context changes–for example trending, ranging, volatility, direction, strength of movements–but even through that variance there are tendencies at certain times (areas) of the day.
Figure out how you will use and implement the data, test it out for yourself to see if it helps your profitability, and only then start incorporating it into your trading plan.
Strong analysis skills and strategies are still required for making day trades. Time-of-day patterns don’t mean we can abandon watching each price wave and assessing its strength or weakness. We still rely on those skills to make solid trades. Time-of-day stock patterns are just an additional tool to use, if they help you.
By Cory Mitchell, CMT
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