Don’t Do These Things During The First Hour of the Trading Day
Many people realize that timing plays a big role in investment success. Choosing the right trade at the proper moment can lead to greater gains. However, many investors – particularly those who are new to the game – don’t realize that the time of day also matters. In many cases, whether you’re new to trading or a seasoned investor, there are certain things you shouldn’t do right when the market opens. If you’re wondering what you should avoid during the first hour of the trading day, here’s what you need to know.
Don’t Get Caught in the Wave
When the trading day begins, an incredibly large number of orders – comparatively speaking –execute in a relatively small amount of time. In some cases, this is because overnight news has left investors chomping at the bit, so they make trades as soon as they are able. However, some of it is purely based on the fact that the trading day is opening, as some investors become active only once this moment occurs. Regardless of the motivation, this can make the first hour of trading is hectic in comparison to the middle of the day.
Plus, pre-market submissions will also execute only upon the official start of the trading day. Essentially, the pre-market orders create a queue, one that starts moving rapidly once trading is open.
Whether it is pre-market orders or active traders, since the activity level rises dramatically, this can cause price volatility. Every purchase and sale can impact an investment’s price, and when a bunch happen at once, this can cause a shocking amount of movement.
Forget About FOMO
For inexperienced investors, during the first hour, these investors may suffer from the fear of missing out (FOMO). This could lead them to make an assumption about an investment’s potential value. A quick upward trend could lead to panic buying. They may fear that they are about to miss out on explosive growth, leading them to buy near the top of a very short peak.
If there is a fast downward trend, some investors may worry that it’s a sign of an investment crashing. As a result, they may panic sell an asset that would ultimately recover later in the day, potentially leading to a loss or uncaptured potential gains.
In most cases, prices stabilize as the trading day wears on, giving investors a better picture of the current value of an investment. Early morning volatility isn’t always a sign of a trend; it’s simply a blip on the radar.
Don’t Skip Out on Research
While you may wake up ready and raring to trade, that isn’t how you should typically start your day. Instead, it’s better to commit to some early morning research.
Overnight occurrences at companies can position an investment for gains or losses. By doing some research, you can find out if anything happened that may impact the viability of an investment, allowing you to determine if buying or selling now is the right move.
This is especially true during periods of higher volatility, including the first trading hour of the day. By doing your research, you can find out if any price movements are spurred by an event or if they are simply the result of a large number of trades executing during the same time window.
Ideally, you would actually want to conduct your research prior to the start of the trading day. However, if you’re unable to do so, it’s better to focus on information gathering during the initial hour than on making moves. If you have investments you’re thinking of selling, note any early morning price movements but also look into why they’ve changed (suggesting that there’s been a substantial swing in value). The same goes for prospective buys.
It’s also smart to start looking for potential patterns within various investments. For example, if a stock has a reasonably consistent early morning shift, you may be able to recognize it. If that’s the case, this could lead to an opportunity. Just keep in mind that the stock market is often unpredictable. There’s no guarantee any pattern will continue long-term, as a range of factors can cause any stock to break free of its mold.
Can you think of anything else investors shouldn’t do during the first hour of the trading day? Share your thoughts in the comments below.
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