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What is the Best Time of Day to Trade?

Posted by David Bean on

There is a popular saying on Wall Street (for different stocks) that says "As GE goes, so goes the market" GE is getting killed! A lot of smart money is getting burned. This could change the perception of the fundamentals and this bull market. Could it be the beginning of the next black swan? Today GE dropped below 18, which the markets seemed to use that as an opportunity to buy the dip (as GE approached 18). 

I anticipate that if we doe see a bear market or rolling correction, there will still be dip buying along the way.

In this discussion, we take a look at specifically the best time of day to go long the stock indexes over the past 12 months. It is very simple, we setup a strategy that says, "If the time is (input variable) then buy". 

The results for the past 12 months are unbelievable and show just how unusual this market is. To simply buy at 11 am every day and use a $500 stop loss and $500 profit target, should not generate such a profitable strategy. This strategy shows the extreme nature of how much the bulls have control of the market (with the help of the Fed's monetary policy). It is a bit extreme in my opinion.

I wouldn't start trading this now! Or maybe we should if the trend is your friend? You could risk the worse case drawdown, which is very small and then use it as a trailing stop loss. No one can predict the future though. I don't anticipate the next 12 months will be as profitable as the last 12 months using this strategy but it is possible that it could do well.

Here is a screen shot of the Tradestation EasyLanguage code.

We put it on a one minute chart of the day session for E-mini S&P (@ES.D), E-mini Dow (@YM.D), and E-mini Nasdaq (@NQ.D) to generate the results below (without slippage or commission). The one caveat if you are a day trader is that we hold positions overnight. For this reason, the biggest winner and biggest loser is larger than the stop loss and profit targets. If you try to manage it at night on the 24 hour symbol the results are not as good as it will limit your winners (and losers). You could modify the code to use a stop loss at night but to only use the profit target during the day. This way, you can still get the larger winners on the gap up.

The reports for each market are below.

Buy at 11 am EST E-mini S&P

Buy at 11 am EST E-mini Nasdaq

Buy at 11 am EST E-mini Dow

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