CHART: Why We Never Trade in the First 30 Minutes

One of the hard and fast rules that I have developed after 15+ years of trading in the financial markets is to never trade in the first 30 minutes of the market’s open. From my experience, I have found that the first 30 minutes of the market’s open is often a time of excessive volatility as overnight orders are being filled and amateur traders are bidding up prices. In fact, our subscribers who receive our daily trading idea by email and/or text know that we avoid the first 30 minutes of trading at all times.

Therefore, I was intrigued by an article in yesterday’s Wall Street Journal entitled: Why Morning Is the Worst Time to Trade Stocks. The article did a great job of explaining why trading right at the market’s open can put traders at a disadvantage.

According to the article:

This “gap” referred to in the article is known as the bid/ask spread. Put simply, it is the difference between the price at which buyers are willing to buy and sellers are willing to sell. Larger bid/ask spreads can hurt your returns as they often cause your trades to execute at a price that is different from the price that you had expected. This is a phenomenon known as slippage.

According to an analysis by the WSJ:

To avoid excessive slippage costs, it is best to wait for the volatilty at the market’s open to smooth out before you begin trading. That’s why I always sit out the first 30 minutes of the trading day. I wait for the market to smooth out and then begin looking for opportunities.

Until tomorrow,
Jerry Robinson