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What is the best time to buy and sell shares?

When trading or investing in stocks, timing is everything. But how will you know if you’re trading shares at the right time? Learn more about the best time, day and month to trade stocks using our guide.

Is this the best time of day to buy and sell shares?1

The best time of day to buy and sell shares is usually thought to be the first couple of hours of the market opening. The reason for this is that all significant market news for the day is factored into the stock price first thing in the morning. So, when it comes to buying and selling stocks, the early bird often catches the worm.

All this activity often makes the first one or two hours of a day – or even the first 15 minutes – more volatile. As the day progresses and latest macroeconomic developments and market events are already factored into stocks’ prices, trading volumes and volatility flatten out somewhat. This means the opportunities that come with volatility are typically at their highest right after markets open, decreasing as the day goes on (although activity often does pick up in the last hour of a day’s trading session).

Different markets open at different times, subject also to their time zones, so it’s important to know when your chosen market’s ‘best time’ is in your time zone. For example, you can trade the FTSE 100 from 8am UK time, while trading the DAX 40 index means 9am Frankfurt time (8am UK time). If you want to trade the New York Stock Exchange (NYSE), that opens from 9.30 Eastern Time, which only at 2.30pm in UK time.

Discover the best times of day to trade around the world

Is this the best time of the week to buy and sell shares?

The best time of the week to buy and sell shares depends on a few factors – and it’s also important to remember that past performance (including the best days and hours in the week to trade) is no guarantee of future results.

With us, normal stock market trading hours are Monday mornings to Friday evenings, while our weekend hours are from 8am Saturday to 10:40pm Sunday (UK time).

May be the best time of week to buy shares: the Monday effect

One of the most popular and long-believed theories is that the best time of the week to buy shares is on a Monday. The wisdom behind this is that the general momentum of the stock market will, come Monday morning, follow the trajectory it was on when the markets closed.

So, if an exchange or index was trending up on Friday, common trading wisdom states that it’ll likely continue in that vein, though often with lower returns, when markets open again on Monday.

However, some traders and investors believe that markets tend to trend downward on Mondays. This can mean much lower returns on Monday than there were to be had on Friday, making Monday traditionally known as a good day of the week to snaffle up potentially undervalued stocks and indices.

The S&P 500 data on exchange traded funds (ETFs) for 2019 seems to uphold this, with Monday being the only trading day with a drop in its average daily change percentage.2

Then again, ‘Mondays are generally busier, with higher volumes of traders and investors, while Fridays are quieter, as is generally well known to happen in the industry according to our trading data’, says IG Assistant Portfolio Manager George Bear.

Find out more about when to trade the US stock market

Source: Bespoke Investment Group, 20192

May be the best time of week to sell shares: Friday

If back-to-work Monday markets are more likely to trend downwards (for which there’s little hard evidence, although many traders and investors certainly seem to think so), then Friday is the opposite.

Whether because of weekend optimism or because Saturday and Sunday’s news hasn’t been priced into the market yet, many traders feel that Fridays see stocks and indices priced higher. This could make Friday a good time to sell stocks, hopefully for a slightly better price than they might fetch on Monday. However, remember each week should be judged for its merits and potential pitfalls by yourself – regardless of whether it’s a Friday or not.

While Fridays may in theory be a good day to sell shares, traders and investors ignore the larger context of the market and fundamental analysis at their own peril. Generally, the more liquid and volatile a market is, the more opportunity for potential profit exists (this also means risks of loss are higher too.) So, if a significant macroeconomic event like an election takes place on a Tuesday, chances are that’ll be the best day of that week to trade.

Is this the best month to buy shares?

When it comes to the best month to buy shares, there’s an old adage that’s often repeated: ‘sell in May and go away’. This old expression is thought to come from 17th and 18th Century Britain. The thinking behind it was that wealthy investors and traders would quit London in May to spend their summer months abroad, where they wouldn’t be able to monitor their stocks or positions.

So many would ‘sell in May and go away, come back on St. Leger’s Day’ (which was traditionally in mid-September). This was thought to cause a slump in the market, with far lower trading volumes from May until autumn.

Conversely, it was thought that stocks performed better from 31 October onwards as investors and traders settled back into work for the winter. This was known as ‘the Halloween’ effect’, which stated that 31 October to 1 May was the best time of year to buy and trade shares.

The S&P 500’s average returns from 1980 to 2019 show anecdotal evidence of this. Index returns in particular were low in June, August and September, rallying again from October through to December.3 However, index returns for May weren’t particularly low, nor January and February high, throwing some doubt onto the ‘sell in May and go away’ saying.

That being said, this data comes from the past and, as we all know, past performance is no indication of future success or failure – so be sure to judge for yourself, based on rigorous analysis, when the best month to trade would be for you.

Source: Stock Analysis, 20193

What is the best day of the month to trade and invest in shares?

Unlike times in the day, there’s little clear evidence of a ‘best’ or ‘worst’ day in the month to trade or invest in shares – this will largely depend on the month in question. However, some traders speculate that, in an average month, there may be an increase in buying stocks around ‘pay day’ time, so towards the end of one month and the beginning of a new month, when salaries are in and some traders and investors have a little more disposable income to spend on new trades and shares.

If this holds true, the best time to sell shares might be around the end or beginning of a month, when interest in buying is high, which may drive up share prices. Consequently, mid-month may be a good time to buy shares as prices might be lower.

Best time to buy and sell stocks summed up

  • It’s important to remember when considering the best time to trade that past performance is never an indicator of future results, and each day, week, month and hour should be analysed in its own right by you as a trader to determine your best time
  • Common traders’ wisdom holds that the best time of day to buy and sell shares could be in the morning, right after the markets open and for the next couple of hours after that
  • The best time of the week to buy shares is thought to be Monday, when volumes of people on the market are higher – this has been dubbed the ‘Monday effect’
  • Another day that is often considered as the best day of the week to sell shares is Friday, when trading and investor volumes are lower but share and index prices may be higher
  • The best months of the year to trade were traditionally thought to be from 31 October until 1 May, though there’s little evidence to support this in our modern era
  • What’s considered the best day of the month to buy shares is similarly unclear, but could be around the end and beginning days of a month – selling shares during this period can bring benefits due to the ‘pay day effect’

1 The hours mentioned in this article are set by each individual exchange and may vary. Hours change as countries shift to and from daylight savings time.

Sources:

2 Bespoke Investment Group, 2019
3 Stock Analysis, 2019

Publication date : 2021-10-29T15:48:45+0100


This information has been prepared by IG, a trading name of IG Markets Limited. In addition to the disclaimer below, the material on this page does not contain a record of our trading prices, or an offer of, or solicitation for, a transaction in any financial instrument. IG accepts no responsibility for any use that may be made of these comments and for any consequences that result. No representation or warranty is given as to the accuracy or completeness of this information. Consequently any person acting on it does so entirely at their own risk. Any research provided does not have regard to the specific investment objectives, financial situation and needs of any specific person who may receive it. It has not been prepared in accordance with legal requirements designed to promote the independence of investment research and as such is considered to be a marketing communication. Although we are not specifically constrained from dealing ahead of our recommendations we do not seek to take advantage of them before they are provided to our clients. See full non-independent research disclaimer and quarterly summary.

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