The stock market is often very unpredictable in the sense that anything can happen at any time. However, for the most part, the schedule of the major exchanges more or less follows the same schedule and characteristics every day. All times are New York City time – Eastern Standard Time (EST).
4:00AM- 9:30AM. Many investors are surprised to learn that the ARCA exchange begins executing orders as early as 4:00AM. The pre-market trading session is very illiquid meaning the amount of shares being traded is very small, which can result in wild price fluctuations. Investors and day traders take this time to read up on any news that has happened overnight and to check in on international markets and commodities.
9:30 – Market order auction. This will be explained in further detail later
9:30AM –9:45AM. Market open. At the NYSE a VIP guest (such as business leader or foreign dignitary) will ring a symbolic bell to indicate the beginning of the trading day at exactly 9:30. The first 15 minutes of trading is the time when volatility is high as many day traders and automated trading machines begin entering large positions. It is recommended that longer term investors not initiate a new position at this time.
9:45AM-11:00AM – Morning session. During this time the market has calmed down a bit and trading activity is at normal levels.
11:00AM-2:00PM. Lunch time. During this time the market trades at a pretty slow level when compared to the previous few hours. Many high frequency traders have either finished trading for the day or will not be taking a long break as volatility and volume is not as lucrative and profitable.
2:00PM-3:30PM. Afternoon session. During this time volume picks up slightly. At this point day traders start to plan out their strategy for the rest of the trading day including when to sell remaining positions.
3:40PM: Closing imbalances will be released to the public. This will be explored in further detail later.
3:40PM-4:00PM. Closing session. Volume and volatility will pick up at this time as many traders are executing their end of day strategy. Portfolio managers and ETF owners can also be active in large volume if they have to rebalance their holdings by either adding or removing a stock in large numbers.
4:00PM-7:00PM. Post-market. Like the pre market trading session volume and liquidity are much smaller and anyone trading in this atmosphere puts themselves at tremendous risk. ARCA will accept orders until 7:00PM.
Investors need to educate themselves on the different characteristics of the trading day. More importantly an investor needs to understand that high frequency trading accounts for a significantly large percentage of trading activity and that it can be very dangerous to trade during certain times of the day. Long term investors can still earn large returns in the market. However, “going up” against professional traders can result in minor setbacks such as a higher buying price or lower selling price.
About the author: Jayson Derrick is the director of trading at PromptTrader, an international proprietary trading firm that deals in US equities and options.
