When you take on the life of a day trader, waking up early is necessary. Your job starts at 9:30AM EST and you need to be prepared. A day trader could trade off 15-minute charts, use 60-minute charts to define the primary trend and a five-minute chart to define the short-term trend. If the market is trending down, they would short securities that exhibit weakness when their prices bounce.
For stocks, the best time for day trading is the first one to two hours after the open, and the last hour before the close – 9:30 a.m. to 11:30 a.m. EST. This is the most volatile time of the day, offering the biggest price moves and profit potential.
The most commonly used time frame is 1 hour, also known as an hourly chart. In 1991, the NYSE launched extended-hours trading from 4 p.m. to 5:15 p.m. Extended-hours trading was initially limited to institutional investors, but electronic trading eventually extended access to retail investors as well.
Trading Regulations and Times
In order to trade using the pattern day trader rule, retail investors aren’t permitted to use day trading strategies. Investors can avoid this rule by buying at the end of the day and selling the next day. If you sell a stock too soon after purchasing it, you may commit a trading violation called “free-riding.” Formerly, this time frame was three days after purchasing a security, but in 2017, the SEC shortened this period to two days.
Peak Trading Hours
- Most Active: 9:30am to 10:30am EST
- Following: First 15 minutes post-open
- Power Hour: 3:00pm – 4pm EST
- Lunch Break Algo Trading: 11:30 to 2:30 pm EST
Day Traders Takeaway: They utilize technical analysis to find trading opportunities, need to actively monitor the market, and may engage in scalping and intraday trading.
Day Trading Time Frames
While a trader can only base his trades on a single timeframe, many experienced traders use multiple time frames to confirm trading signals. Regular trading in U.S. stocks has a clearly defined trading session from 9:30 a.m. to 4:00 p.m. Eastern Time (ET).
Forex Market Activity
The forex market is most active during overlapping times when two different forex markets are open.
The "11am Rule"
The “11am rule” suggests that traders should avoid making significant trades until around 11am, giving the market time to settle after opening.
Rule of Thumb #2: Maximum Two Trend Moves per Day
- Keep an eye on trends between 11:15-11:30am EST.
- A new high of day during this time suggests a 75% chance of closing within 1% of the HOD.