When to Buy Stocks (Detailed Guide and Best Practices)
It’s one of the most common questions among investors and traders: when to buy stock? Let’s go over the best times to buy stock in this post. More detailed analysis on the best times to buy stock are available in our brand new guide to investing available here.
When to Buy Stocks
When the Market Opens
This is a pretty popular belief. If you watch the market action during the
week, more times than not, you’ll see a hot market or stock get off to a
fast start when the bell rings.
There has often been some positive news
about the company after the market closed the day before, or investors
saw something good that morning before the market opened.
Conversely, bad news preceding the market opening can actually be a
good time to buy stocks if you wait for the jumpy owners of that stock
to sell (often 30-60 minutes after the bell).
For example, let’s say it’s a bull market, and Apple comes out before the
market opens with the news that they believe a chip shortage might
lead to a short-term decrease in iPhone production and sales over the
next several months.
More than a few jumpy and fearful traders will
dump their Apple stock as quickly as possible and look for some good
news to trade on.
And that’s good news for you. You believe Apple is the best bet out
there, and even though the price is dropping quickly, you’re ready to
buy.
Great thinking, Big D*^# Trader, but be patient until you see
trading volume leveling off after the initial surge of selling (chart
watching is critical here).
Once it appears the surge in selling is over, it would be a good time to
buy Apple at a discount. Are you “catching a falling knife” by buying a
falling stock and going to lose a finger or two?
No, because you’ll let the
knife hit the table before you pick it up. As John Wooden said, “Be
quick, but don’t hurry.”
During the Afternoon Hours
The afternoon hours (between 11:30 a.m. and 2 p.m. EST) are typically
when the market is at its calmest.
The initial buying and selling surges
have subsided, and volume has leveled off. Company news released
during midday is seldom earth-shaking and doesn’t create the volatility
pre-, and after-market news does.
Some financial “experts” think this is more of a favorable trading
environment for buy and hold investors than it is for short-term swing
or day traders who rely more on volatility to make their money and
abhor a quiet market moving sideways.
When the Market Closes
Once the calm of midday (the eye of the storm) has passed, the final
hour of the trading day often offers plenty of volatility and
opportunities for buying.
Day traders often sell stocks to close out
their positions, which causes downward price movement that may
present a buying opportunity for you.
But beware of sharks. More experienced traders will feast on
inexperienced investors buying based on good news rather than a solid
trading strategy.
Mondays
Many traders believe Monday is the best day of the week to buy stocks.
A lot can happen between the closing bell on Friday and the opening
bell on Monday morning that might cause the price of a stock to rise or
fall.
Any weekend news has to be pretty significant to affect the market or a
particular stock on Monday morning.
For example, it could be that a
high volume, winning day in the international markets happened while
you were sleeping Sunday night and stirred up some heavy pre-market
trading, or the CEO of a Fortune 500 company passed away over the
weekend.
Volume and volatility can also be high on Mondays because of us, the
retail traders. Alongside two days of news, pent-up demand from
traders who can’t wait to get their first adrenaline rush of the week can
cause heavy trading action that first hour or two on Mondays.
I say beware of “Manic Mondays.” Good things come to those who wait
(a couple of hours).
