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Best Time for Day Trading

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Written By
Dan Buckley
Contributor Image
Written By
Dan Buckley
Dan Buckley is an US-based trader, consultant, and part-time writer with a background in macroeconomics and mathematical finance. He trades and writes about a variety of asset classes, including equities, fixed income, commodities, currencies, and interest rates. As a writer, his goal is to explain trading and finance concepts in levels of detail that could appeal to a range of audiences, from novice traders to those with more experienced backgrounds.
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Updated
Mar 12, 2024

The best time for day trading is influenced by several factors including the trader’s strategy, market volatility, liquidity, risk tolerance, and personal trading style.

Generally, the most favorable time frames fall within the opening and closing hours of the market, when liquidity and volatility are higher.

 

Key Takeaways – Best Time for Day Trading

  • Opening Hours Advantage
    • The initial hours (9:30 AM to 11:30 AM EST) present the day’s peak in volatility and liquidity.
    • Ideal for traders to leverage early market movements, data and news releases, and reactions to overnight news.
    • Monday may be a particularly strong day due to market closures over the weekend.
  • Mid-Day Slowdown
    • The period from 11:30 AM to 2:00 PM EST often sees a dip in market activity, making it less favorable for day trading.
    • Traders may find fewer opportunities due to reduced volume and slower price movements.
  • Closing Hours Opportunity
    • The end of the trading day (2:00 PM to 4:00 PM EST), especially the final hour, has a resurgence in activity.
    • Traders can benefit from increased movement as positions are adjusted or closed, and reactions to late-day developments.
    • Friday tends to have the strongest late-day activity.

 

Here’s a further breakdown:

Opening Hours (9:30 AM to 11:30 AM EST for US markets)

This window often presents the highest volatility and liquidity of the trading day, driven by:

  • the initial reactions to overnight news
  • early market trends
  • the opening of the US markets
  • overlap with European markets

Since day traders typically need price movement to find their setups, traders can capitalize on price movements during these hours.

 

Mid-Day Period (11:30 AM to 2:00 PM EST)

Typically, this timeframe experiences a decrease in volatility and liquidity as European markets close, US traders take lunch breaks, and data releases slow.

It’s generally considered less ideal for day trading due to the lower volume and slower movement.

 

Closing Hours (2:00 PM to 4:00 PM EST)

Volatility and liquidity tend to increase again as traders look to close positions, react to late-day news, and position for the next trading day.

The last hour (3:00 PM to 4:00 PM EST) is known for higher activity and can provide more movement.

 

For Forex & Global Markets

Since the foreign exchange market operates 24 hours a day, 5 days a week, the best time frame also depends on the specific currency pair and the overlap of market hours between relevant countries.

For instance, the overlap of the London and New York markets (8:00 AM to 12:00 PM EST) is noted for high volatility and liquidity for currency pairs involving the EUR, GBP, and USD.

For currencies like AUD, JPY, and NZD that are paired with US/North American/European currencies, you’d get more activity during early-morning US hours.

 

Time Breakdowns & Overlap Periods for Currency Markets

Here’s a breakdown of the forex market session overlaps in Eastern Standard Time (EST), focusing on when you can expect increased trading activity and potential volatility:

1. Asia / Europe Overlap

  • EST: 2:00 AM to 4:00 AM
  • Key Markets: Tokyo, Singapore, Hong Kong / Frankfurt, London

This early morning overlap can see significant volume and movement in various currency pairs as traders from both regions are active.

2. Europe / US Overlap

  • EST: 8:00 AM tp 12:00 PM (Noon)
  • Key Markets: London, Frankfurt / New York

This is traditionally the most active and volatile period in the forex market.

Both European and US traders are active, which leads to high liquidity and potential for significant price swings.

Considerations

  • Daylight Saving Time (DST) – These times will shift by one hour during periods when Daylight Saving Time is in effect.
  • “Power Hours” – The first hour of the Europe / US overlap (8:00 AM – 9:00 AM EST) is often referred to as the “power hour” due to high trading activity.
  • News Releases – Major economic announcements from the US, Europe, or Asia can create volatility regardless of the session overlap. Keep an eye on your economic calendar.

 

Other Factors

Trader’s Strategy

Scalpers may prefer extremely short time frames (minutes), whereas momentum traders might look at slightly longer time frames (hours).

Technology and Automated Trading

Those using automated trading systems might leverage strategies that are indifferent to these traditional high-liquidity windows, instead seeking to exploit specific algorithmically identified patterns.

Market News and Events

Economic releases, earnings reports, and geopolitical events can drastically affect market conditions on the smaller timescales associated with day trading.

They can create opportunities outside these general time frames.

 

FAQs – Best Time Frame For Day Trading

Why are the opening hours considered the best time for day trading?

The opening hours (9:30 AM to 11:30 AM EST for US markets) are considered optimal due to the high volatility and liquidity resulting from the initial reactions to overnight news and the morning’s market trends.

This period offers more price movement opportunities, which day traders can exploit for profits.

Mid-day trading, from 11:30 AM to 2:00 PM EST, is typically characterized by lower volatility and liquidity as the market stabilizes and traders take breaks.

This period is often less favorable for day trading, especially for those new to the field, as the slower price movements can limit trading opportunities.

What makes the closing hours attractive for day trading?

The closing hours, especially from 2:00 PM to 4:00 PM EST, see an increase in volatility and liquidity as traders adjust or close their positions before the market closes, and react to late-day news.

The activity during this time provides opportunities for profit through larger price movements.

How does the overlap of market hours affect forex day trading?

For currency markets, which operate 24 hours (outside weekends), the overlap of market hours between two regions (such as the London and New York markets from 8:00 AM to 12:00 PM EST) results in higher volatility and liquidity.

This is true for currency pairs involving the currencies of the overlapping markets, offering quality trading opportunities.

For example, the EUR/USD will usually see higher activity during this period than USD/JPY.

Can the “best” time frame for day trading vary based on trading strategy?

Yes. The optimal time frame can vary depending on a trader’s specific strategy.

Scalpers, who make numerous trades for small profits, may prefer the most volatile periods, like the opening hours, while momentum traders might choose slightly longer time frames to capture movement based on trending news or events.

How do external events influence the best time frame for day trading?

Economic releases, earnings reports, and geopolitical events can dramatically impact market activity, creating high volatility and liquidity outside the traditional time frames.

Day traders need to be aware of scheduled events and be prepared to adjust their trading times and strategies accordingly.

Virtually all day traders have been caught in trades when something they didn’t expect or mistakenly overlooked happens in their markets.

Is automated trading indifferent to the concept of “best” trading times?

To some extent, yes. Automated trading systems can exploit opportunities based on algorithmically identified patterns that may not align with traditional high-liquidity windows.

But even automated systems can benefit from higher liquidity and volatility periods for more efficient trade execution and potentially greater profits.

 

Conclusion

Selecting the best time frame for day trading involves aligning market conditions with your trading strategy, experience level, and risk tolerance.

Continuous assessment and adaptation to market changes are important for success in day trading.