Action and inaction
The stock market has certain periods characterized by more movement and opportunities than others. As a trader, you would do well to know these.
When I published a book on trading in 2021, I compared this activity to being a hunter and gatherer. Being reactive to what nature could offer was the everyday life of most of humanity from the dawn of time until the agricultural revolution approx. 6000 years ago. In today's society, we are used to everything being present all the time, and it is easy to forget that the fact that things go in cycles is closer to the natural state in most ecosystems. For traders in the financial markets, however, there can be a lot to gain from being conscious about this.
For example, it would be perfectly natural for a gatherer to only go looking for blueberries when they are ripe in the autumn. You can spend a lot of time looking for berries in May, but it will give little return on the effort. Another example is the Lofoten fishery, which since the Viking Age has been Norway's best-known seasonal fishery. It is when the cod in large numbers come to the coast to spawn between January and April that the sea offers enormously rich catches. Then the fishermen have to work hard, and the boats can be docked for the rest of the year. This is also the case for hunters. They can't just go out into the forest and shoot but have to deal with the seasons when this is both permitted and the game is available.
The common denominator is that you have to deal with a system that is cyclical, where periods of greater access to opportunities alternate with periods of far worse or even zero opportunities. This is also the case in the market. Most trading strategies used by private traders are based on capturing movements in stocks and indices. It is therefore important to have a clear picture of when you can expect these to occur.
If I were to give two pieces of advice to traders who want to improve their results, number 1 would be to be alert and prepared with a clear plan in advance for the periods when the market offers good opportunities. Number 2 would be to avoid trading during the periods when the market is at a standstill and balanced. Most people will easily understand the first, but the second is at least as important. If you sit in front of the screen for too long and look for something to do, you will eventually think you find something, and strike a trade. You think you see the start of a movement, but in calm periods these often fail, and the stock correct back to their previous price range. You have then ended up going long at the top or short at the bottom of an intraday trading range. These are often bad trades, which end up costing you money.
Whether you trade shares, indices, commodities or trading products based on any of these, there are certain typical periods in the market that are important to be aware of. Below I go through the most common ones.
Example of movements during a trading day
The day in the markets
- 08:00 – 08:45 This is the time when most people in Europe start their day. The markets are not yet open, and it is therefore a good idea to read up on the news and familiarize yourself with what has been new since the previous day. Apart from news items in the media, reports, or announcements from the companies, comments and analyzes from brokerage houses and movements in Asian markets and in raw materials will typically be things you look at.
- 08:45 – 09:00 This is the pre-market period in the markets. Here the order books are opened, and you can get an idea of where the stocks will open. If there is price-driving news on a company, you will often be able to see significant activity in the order book before opening, and you can see in which direction there is interest.
- 09:00 – 10:00 Here the European markets are open. Often much of the day's price movements happen relatively quickly after the open, so this is a very active period for traders. Here it is important to be ready and prepared. This period actually extends right up to approx. 11:00, but I have chosen to split it up to include another important moment.
- 10:00 – 11:00 At 10:00 European time, pre-trade electronic trading opens for US shares on the US stock exchanges. At times there can be significant effects on these. This in turn can result in movements on the index futures (which are also traded before 10:00), and on both European peers to US shares, and European shares that are also listed in the US. If you buy trading products on US shares such as Tesla, Microsoft, Apple and the like, you will also see that there will be more activity in these when the pre-market period in the US has started. 10:00 is therefore a time to be aware of.
- 11:00 – 14:00 This is usually a quiet period in the market. The morning's news has largely been priced in. People go to lunch, and in many European countries this often takes an hour. My experience is that it is best not to trade during this period. Set alerts if there are positions or prices you want to follow, but otherwise get away from the screen. Have lunch, go for training, meditate, go skiing, or do other work. This could also be a good time to do analyzes and the like.
- 14:00 – 15:30 From approx. 14:00 there is more vigor in the markets again. Why? Well, 14:00 European time is 08:00 in New York. Then the day starts in the world's largest capital market, in the same way as we saw in Europe further up. Statements and numbers from companies will typically be released and have a price-driving effect. It is also common for US macro numbers to be published at this time, often 14:30 European time. While company news most often has an effect on the individual company itself and perhaps the sector, macro figures can move the entire market to a greater extent. For a trader, it is very important to be alert and ready to react when these are released.
- 15:30 - 17:30 This is typically the most active period in the market, and the most intense for traders. There are several things happening at the same time. First, most of the movements in the US are often done within the first hour. There are actually quite a few traders in the US who trade exclusively during this short section of the day. Towards the end of this period, however, we also have market closures in Europe. Oslo Børs is one of the first with the end of continuous trading at 16:20 and final auctions in the minutes thereafter. Denmark then closes at 17:00, while most other EU countries and the UK close at 17:30. There is often large volume and significant movements leading up to and in the final match. This is also where European traders have to choose whether to close their positions for the day or hold them over until the next day. Possibly also put on new ones in the final match. If you trade trading products on American shares/indices that are listed on European stock exchanges, this is also the last chance to get something done in them before the next day.
- 17:30 - 21:00 Here again, it is often quieter in the markets. In New York, brokers and investors go to lunch. European markets have closed, and managers and investors in the EU and UK have gone home for dinner. Often this period can resemble the EU from 11:00 to 14:00, and therefore be a time to stay away from the screen. However, there are some exceptions worth mentioning. One is when there is an interest rate announcement from the US central bank. The Fed usually releases these at 20:00 and holds a press conference half an hour later. Both can lead to considerable waves in the market. Another setup worth noting is counter moves after the EU has closed. If there has been a big up- or down move in the USA in the first hour and a half, you can occasionally see that the indices reach their daily top or bottom roughly coinciding with the closing in Europe. Perhaps this is the effect of asset managers, banks and brokers in the EU/UK having orders to "finish" before going home for the day? It is not unnatural to think like so. Either way, this is a setup to keep an eye on for traders. If you want to go against (counter) the first price movement of the day, 17:30 is often a relevant time to do so.
- 21:00 – 22:00 In the last hour before closing on the American stock exchanges, you often see that activity picks up, and that there are more tradable movements. Traders need to pay particular attention to days with unusually large option expirations. Weekly option series expire at the close of business every Friday, while monthly option series expire every third Friday of the month. In addition, there are the quarterly options that close on the last trading day each quarter.
- 22:00 – 23:00 US markets are closed, but electronic aftermarket trading continues. During the reporting season, company numbers are often released during this period which can lead to price movements. Some traders trade in the US aftermarket, while most wait until the next day.
Another point in time worth mentioning is 20:30 when regular trading closes on the commodity exchange NYMEX. It is often seen that oil and gas prices move actively towards this time, while both price and volume calm down considerably afterwards.
Whether you trade actively or more on a hobby basis, it is important to know the times when the market is in motion. It is not necessarily the number of hours in front of the screen that is the key to success, but rather being awake, ready, and focused during the periods where there is action. Experience with this has had a considerable impact on my own trading, and I now plan my working day according to the market cycle in line with the above.
Disclaimer: After many years in the brokerage industry I started my own business in 2021. I published the book "Paleo Trading: How to trade like a Hunter-Gatherer” and launched Paleo Capital that manages a hedge fund according to the principles described in the book. I emphasize that nothing written on this blog is to be regarded as personal advice or a concrete call to take positions. Everyone must be responsible for their own decisions and familiarize themselves with the products they use.
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