Check out these simple rules for the best times to get started.
So you’ve decided to try your hand at trading shares. You know the basics: buy when prices are lower, and sell when they’re higher. Simple, right? Not quite…
Stock prices jump up and down all the time, so it can seem. If you look closely though, there is some method to the madness. Read on to discover the best time to buy shares.
Why prices fluctuate
It’s fairly common knowledge that no price is fixed in stone. Produce goes "on sale" when it’s nearing its use-by date. Clothing goes "on sale" to make room for newer stock and trends. Tickets for all sorts of things go "on sale" when event organisers are running out of time to fill the empty seats, or during ‘off-peak’ times.
Whether it’s fruit, clothing, tickets, or shares, the underlying mechanism that dictates price is the same: supply and demand. If demand is greater than supply, prices go up. If it’s the other way around, demand is less than supply, prices go down.
But why do stock prices fluctuate?
The market does a pretty good job of working out what a business is worth, and this is reflected in the stock market - in the long term. In the short term, there are heaps of things that can impact the market: rumours, broader economic news, a natural disaster, RBA decisions or release of company financial data, or someone sneezed and accidentally hit sell on half the stocks in their company.
While you don’t want to count on those tiny fluctuations as a general rule, there are broader patterns you can look at to guide you.
The best time of day to buy shares
As is often the case, a simple sounding question doesn’t have a simple answer. The first hour or two of trading every day can be chaotic. All the news that’s been released overnight is jolting the market like crazy. If you’re a seasoned veteran trader, this may be a great time to try to turn a quick profit. For the rest of us though, it might be best to sit back and avoid getting trampled. The last hour of the day is much the same.
For a novice, the best time to buy shares is often around midday. All the news has already been factored into prices, and the big players are waiting to see what direction the market will take for the rest of the day. Prices are perceived to be more stable.
The best day of the week to buy shares
Mondays. Kind of.
According to David Lynch’s book One Up on Wall Street (1989), it’s because when companies have bad news to release, they do it on Fridays - so the market responds on Mondays. Others may attribute it to traders being just as gloomy as the rest of us at being back at work on Monday. Whatever the reasoning, the trend known as the ‘Monday Effect’ held true for many years (and was supported by studies like this one). But, if you’re going to pick a day to buy shares, it might as well be Monday.
According to David Lynch's findings, it may be more common for share prices to decline on Mondays after the release of bad news on Fridays. If this is the case, it follows that the best day to sell shares would probably be Fridays.
The best time of the month to buy shares
Again, there’s no hard and fast ‘best time to buy shares’ rule here. But there are patterns. Stocks tend to climb towards the end of the month and fall in the middle of the month.
So, in our opinion, the best time of the month to buy shares is probably somewhere in the middle, say between the 10th and 15th, while the best time to sell is within a few days of the end of the month.
So, there you have it. The best time of the day, week, and month to trade shares.
Share prices can be unpredictable, especially over shorter periods of time. Past performance is not a reliable indicator of future performance.
Use this information to give you some guidance on when to get into the action, but always remember to crunch your numbers and consider your goals before making a move.