The time of day you trade matters. I just finished looking over my trades for the past month, since I opened my SureTrader account. They allow me to make as many trades as I want without any PDT restriction. So naturally I am trading more often. The results surprised me. You can learn more about the Pattern Day Trader rule and how to avoid it here. When is the best time to trade?
Since opening the account, I have made more trades for sure. I have lost about $500 total from various trades but the thing that stuck out to me was the time of day I lost the most money. Pre-market and even the first 15 minutes can be the most volatile, but this has been the most profitable time for me. Lunch trades, or midday trades have always ended up with me breaking even or losing money. I did not have a single profitable trade in the midday hours of trading.
Let’s examine one of these trades that should have been an easy win and definitely had the potential to be profitable, but I ended up losing almost $300 instead. MJ is an ETF that tracks the emerging weed industry. The day was 11/6/2018 mid-term elections day! With several measures on the ballots across the country to legalize marijuana in the medical and recreational fields, I expected the excitement for many of these stocks to be high the day after the ballots were cast. This assumption was based on previous years’ elections. Almost all similar measures were approved by voters with wide margins.
Of course I needed to manage my risk; since any stock can go in any direction at any time, one must always budget the maximum loss one is willing to take. Since I was looking for a 6-8% swing with a relatively low risk, I was willing to risk 2-3%. I found that the last resistance level was at $33.98 and I decided to place my stop just below that price, at $33.95. At 1:37 PM I placed my order for 300 shares for $34.70 each and the trade executed promptly. The price held steady between $34.50 – $34.75 until 2:15 when the price began to fade. The price fell rapidly until it broke down below $34, then quickly dropped below my stop, executing my sell order at $33.83, $0.12 below my stop.
The Time to Trade
Now, I had proper risk management in place and only lost about $270 total, but it also cost me a day trade when I had no intention of selling the same day. So, I was pleased with my plan to the extent that it didn’t jeopardize a large portion of my trading capital. But the fact remained, every midday trade I made lost me money, and this “easy” trade proved the point. There may very well be money to be made midday, but it has not been working for me.
So, from here on out as a general guideline, I will not be trading between 11am and 3pm. Before and after those times, the market is more active and the directions are better defined. Long-term breakouts that occur midday are fair game, but swing trades and most day trades will be made between from 9:15 – 11 AM and 3 – 4 PM. Few exceptions will be made.
Side note, I’m working on a guide to summarize all my rules. I will make it available for free as soon as it is profitable.
What if I had used this rule with the same assumptions and plan but waited until after 3pm to buy in? Would I have fared any better? Yes, without a doubt! If you look at the chart below, you can see I would have had a much better entry point and used $33.50 as a stop. It’s also worth noting that all my other assumptions proved true. The votes on election night allow for more access to marijuana in both the recreational and medical fields. The price opened at $35 and spiked up over $35.50 within a few minutes of the open. Now, it didn’t hold it during the day, but I would have been able to exit the trade with a profit of $300+.
The key to looking at what could have happened is learning the pattern and looking for it again in the future. Don’t sit around and beat yourself up for missing out on profits. After all, there were literally millions of other trades that you didn’t know about that “could” have made you rich. You don’t stress about those so you should not stress about these. It is always worth learning from what could have been, just make sure you are constructive.
Final Thought and Notes
As the year draws to a close, it is becoming more apparent to me that I will not likely have the bankroll to quit my job and pursue a full-time career in day trading by the end of this year. However I do fully intend to continue this quest. Once I have the skills, they will never be lost. Traders today are no better than they were 100 years ago. It is truly one of the last professions that has not been figured out. Please join me on this journey to financial independence. Follow this blog by signing up below.
Thanks for reading and happy trading! Follow me on twitter for all trades, live!