10 A.M. Rule Stock Trading: A Guide to the Best Times for Making Profits in Trading

The prices and how much people buy or sell can change significantly at the beginning of the day.

When the market first opens, it takes in all the new information and things that have happened since it closed the day before. 

This can make the prices fluctuate massively.

Experienced traders can take advantage of these changes to make money quickly. But if you’re new to trading, you should be careful not to get caught up in the fear of missing out. 

That can lead to losing a lot of money that you can’t get back.

The key is to minimize losses and increase the probability of gains – which brings us to the 10 A.M. rule in stock trading.   

In this post, we’ll talk about the 10 A.M. rule stock trading and why it is used.

What Is The 10 A.M. Rule in Stock Trading?  

The 10 A.M. rule stock trading is a strategy that suggests traders should wait until after 10 A.M. before making trades in the market. The reason for this rule is that when the market opens in the morning, there is a lot of activity.

The prices of stocks fluctuate a lot, making it difficult to predict how the stock will move during this time. In the first thirty minutes of trading, there are price changes because of news from overnight, what’s happening in other markets worldwide, and how people are feeling.

Some people call this time the “dumb money” period.

That’s because novice investors tend to make quick and not-so-smart decisions at this time. Looking below, you’ll see larger amounts of money are put into the market at the beginning and end of the trading day, especially before 10 AM.

By waiting until after 10 AM, traders can avoid making quick and impulsive decisions which helps reduce the chance of losing money.

Why You Shouldn’t Trade Before 10 A.M.

Knowing how prices change throughout the day in the stock market is essential. 

Here’s what usually happens.

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Before 10 A.M., the “reversals” moments show if the trend from the beginning will keep going or change. 

Once past 10 A.M., you should better understand how the market is going.

Watching stocks in the morning can be insightful for traders because the prices change quickly and often when the market opens. 

But there are reasons why it might not be the best way to make decisions…

The False Swings 

Sometimes, there can be false signals in the morning. 

This means that the price of a stock may go up or down temporarily, but then it goes back to where it started. 

This can happen because fake news tries to trick people into buying or selling.

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It’s bad for you to enter a trade right when the price moves. If you buy when the price goes up because of false news, you can lose a lot of money when the price dips back down later (which can happen in a matter of a few hours.)

And if you sell when the price goes down because of fake news, you’ll miss out on profits.

Unclear Stock Price Trends

Traders should wait until after 10 A.M. to see if things settle down and a clear pattern emerges.

By waiting, you can better understand the market’s direction and avoid getting tricked by early morning signals.

Here is a real-life example:

Let’s imagine a stock that closes at $140. 

After the market closes, the company says it will make a two-for-one stock split. The next morning, when the market opens, the stock goes up to $160. 

It even goes as high as $165 before 10 A.M..

But after 10 A.M., the stock starts declining and doesn’t reach $165 again for two hours. Finally, at 2 p.m., it goes up to $165.50. 

According to the 10 A.M. rule, it’s now a good time to buy the stock.

In this example, the 10 A.M. rule means traders should wait until after 10 A.M. to decide. By waiting, traders can watch how the stock is doing and avoid making quick decisions based on what happens early in the morning.

In this case, waiting until 2 P.M. allowed traders to see that the stock went above the earlier high of $165. This showed that it could be a good time to buy the stock.

Emotional Decision-Making 

A lot of people who try day trading end up quitting very quickly. Around 80% give up within the first two years, and about 40% quit after only a month.

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The reason is pretty simple – trading for profit can be really tough on your mind, especially if you’ve lost money. Trading in the morning can make you feel more emotional because the market changes quickly, and it’s hard to know what will happen.When you make decisions based on emotions, you trade impulsively without thinking long-term.

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So you might focus on short-term changes in prices instead.

Feelings like fear, greed, or panic can make it hard to make good decisions about trading. These emotional trades are often called “dumb money.” It means people make trades based on what they heard on TV or read in the news the night before.

The 10 A.M. rule lets you wait until you calm down and see what’s really happening in the market.

What’s the Best Time of Day to Trade Stocks? 

You might be wondering, “When is the best time to trade stocks?”

Some people who trade stocks look at short-term price changes to make money. Knowing the best time to buy stocks during the trading day can help you be more successful. This is because stock prices go up and down throughout the day because of how people feel about the market.

Experienced traders know that certain times during the trading day are better for buying or selling stocks. Here are some things that tend to happen during a trading day:

Stock Market Open 

The stock market opens at 9:30 AM EST, and when it does, there can be big changes immediately. This happens for a few reasons:

  1. Overnight news. Sometimes news about a company comes out after regular trading hours. This news can affect how people want to trade the stock. The prices can change a lot when the market opens based on that news.
  2. Morning headlines. Before the market opens, new headlines can make people want to trade certain stocks. This makes the prices change a lot.

Experienced traders like this time because the prices fluctuate, so they can make quick trades and take advantage of the opportunities.

But for most regular traders, it’s better to wait. 

This way, you can see how things are going and notice any patterns or trends. It’s better to buy or sell stocks once the prices have settled down around midday – sometimes even waiting until 11:30 AM EST before making trades.

Afternoon Hours 

After the morning chaos, the volume and price volume tend to settle down. 

Company news released in the afternoon hours rarely creates the same volatility seen in the mornings.  While there is less profit potential between 11:30 A.M. and 2 P.M., it’s more stable, which minimizes potential losses.

Market Close 

The last hour of the market acts similarly to the first hour. 

Between 3 PM and 4 PM EST, you’ll see a flurry of activity, leading to increased price movement and volume. This is where traders may decide to sell to close out day trading positions or look to get in on late price rallies. 

Unless you’re highly experienced, avoiding or treading carefully with trading at the last hour is best. This is because lower trading volume and fewer market participants can result in wider bid-ask spreads and increased slippage. These factors make entering or exiting trades at desired prices more difficult, potentially leading to increased trading costs or unfavorable trade executions.

It’s also harder to accurately predict stock movements, which can cause unexpected outcomes.

What’s the Best Day of the Week to Trade Stocks? 

Some traders believe that certain days of the week offer consistently better returns.

When considering long-term trends, there is limited evidence supporting such a market-wide effect. Historically, there is a Monday effectphenomenon, where stock markets decline on Mondays. 

It can happen for a couple of reasons, such as: 

  • Release of negative news over the weekend 
  • Investor’s gloomy mood when returning to work 

Data shows that while Mondays tended to have slightly negative returns, the effect was minimal.
If you plan on buying and holding stocks, Mondays may present opportunities to purchase them at bargain prices.

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On the other hand, some traders like to sell their stocks on Fridays.

This is because prices tend to rise due to over-optimism at the end of Fridays before prices decline on Mondays. If you’re interested in short selling, Friday may be a golden opportunity to initiate a short position if stock prices rise, while Mondays can be the right day to cover the short position. 

In the US, Fridays before three-day weekends tend to be particularly advantageous since there’s usually a positive sentiment leading to a stock market rise. 

What is the Best Month to Trade Stocks? 

The end of the year, especially in December, can be a good time to buy stocks. This is based on the average monthly returns of the S&P 500 Index from 1950 to 2017, which show that December has had some of the best returns.

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In January, there is something called the “January Effect.” 

This means that some investors sell their stocks to balance out any profits they make during the year and lower their taxes. As a result, many investors see this as an opportunity to buy stocks at a lower price in late December, expecting the prices to go up in January.Also, investors often use the cash bonuses they receive at the end of the year to buy stocks in January. This also helps drive up prices.

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On the other hand, historically, September has not been a good month for returns. 

There’s no clear reason for this; some people think it’s just a strange pattern. However, some believe that institutional investors, who manage a lot of money, tend to sell off their stocks in September to finish their business for the third quarter of the year.

When is the Best Time of the Month to Trade? 

Stock prices have been higher at the beginning and end of the month in the past. This happens because mutual fund managers receive new money from people at the start of the month and use this money to buy stocks, which increases prices. 

The fund managers also decide how to use their existing money at the beginning of the month, which can also increase buying activity and push up prices.

On the other hand, some investors sell their stocks towards the end of the month. 

They do this for various reasons, such as:

  • Taking profits
  • Needing money
  • Adjusting their portfolios

Because of this, stock prices may go down a little in the last five days of the month.

It’s important to know that even though this pattern has been seen in the past, it doesn’t mean stock prices will always follow this cycle. 

The market can change, and other things can affect stock prices anytime. 

Ready to Trade Stocks like a Pro?

If you’re a stock trader, sometimes it might be better to wait and see what happens before moving early in the morning.

Losing a lot of money is hard to recover from, and it might require making riskier moves to get back on track. If you’re trading stocks for a day or a short period of time, you should make decisions based on your trading plan, not on sudden news or price changes. 

It’s like playing chess and thinking ahead to the next five moves. When you step back and don’t get caught up in the initial price changes before 10 A.M., you can see better opportunities once you understand if the prices are going up or down.

If you struggle to figure out the best time to trade or want higher profits, we are here to help!

Our team at Theta Bandits consists of experts who can give you personal guidance with your trading strategy. You’ll also get to watch live trading sessions to see how the experts make their decisions – you don’t need to trade alone.

Join our Free Discord to get started and improve your investment portfolio right now!

Disclaimer: This article is for informational and educational purposes only, not investment advice. We recommend researching and consulting with a financial advisor before making investment decisions. All actions based on this information are at your own risk.

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