Stock Market Intraday Repeating Patterns – TradeThatSwing

The stock market has certain intraday patterns that commonly occur. If you watch an intraday chart of the SPDR S&P 500 ETF (SPY), for example, you’ll see that it tends to trend and reverse at similar times each day. It also has periods that tend to have high volume and movement, and low volume and movement.

These are called “time-of-day patterns for stocks.”

Such tendencies can be used to enhance trading performance.

There are some common, reliable, and repeating patterns, and other intraday patterns that are more obsure, such as what time of day price reversals are likely to occur.

We’ll briefly look at Common Patterns and then look at the lesser-known Time of Day stock patterns.

All the patterns discussed below occur in stock indices, but may also occur within individual stocks.

Common Stock Market Intraday Patterns

The stock market opens in the US at 9:30 am and closes a 4 pm, Eastern Time. Because of the opening and closing schedule, there are a number of common patterns that occur.

Volume and volatility are highest at the market open.

  • Volume is high when the stock market opens at 9:30 am. It remains high for the first several minutes and then generally drops off over the next couple hours. People are rushing in to buy based on news or events that happened overnight or the prior day, and all the orders placed overnight are being filled.
  • Volume is also high at the 4 pm close and a few minutes prior. People are closing positions, or entering positions for the next day, at this time.
  • The largest price moves in the shortest amount of time tend to occur just after 930 am, and up to 45 minutes after. After that, the price generally calms down (relative to the opening flurry).

This is useful because it highlights where the action is. Experienced day traders know this, often opting to only trade the first hour or two of the trading day because volume and price movements tend to be highest. After that, price movement and volume may drop off. We’ll discuss this in the Time-of-Day patterns below.

There is also another common intraday pattern we need to be aware of.

Stocks tend to move down more than they move up during the trading day.

  • Stocks actually do most of their upward movement overnight. Weird right!? Most of the stock market gains going back to 1993 have occurred as price gaps, NOT the price moving up during the day. A price gap is when a stock closes and then opens higher the next day because people are willing to pay more for it today than yesterday.
    • From 1993 to 2022 the SPDR S&P 500 ETF (SPY) was up pretty close to 1,000% (not including dividends).
    • Buying on the close, and selling on the open—which means holding a position overnight and then selling it the next morning—produced a gain of just over 1,000% according to Bespoke Investment Group. Essentially nearly all the gains over this time frame came from being long overnight, not during normal market hours.
    • Buying on the open and selling on the close—holding a position for one day, but not overnight—has produced an overall negative return since 1993.
overnight S&P 500 returns vs intraday returns 1993-2022

This is useful because it highlights that you need an edge for intraday entries and exits. Most stocks will go up as much as they go down during the day, and they will go down as often as they are up during the day. Therefore, day traders need an edge for getting in and out with a profit, and trading both long and short if they hope to make good returns over many trading days.

Many people operate under the false assumption that if there is an uptrend they can just buy during the day and make money. The statistics above show this generally will not work out.

To profit from intraday requires more specific guidelines for when to trade, when not to, how to capture intrday trends, and cutting losses quickly. This is where a strategy comes. Strategies tell us not only when to enter and exit, but also when we want to be trading and when we shouldn’t trade at all. This article may help you fill in some of those details, or enhance a current strategy that you have.

Stock Market Time of Day Patterns

There are certain times of day that tend to produce certain intraday patterns in stocks.

Below, I break down the trading day into time zones, and then explain what tends to happen in each of those zones. I find the early morning patterns the most reliable.

The zones are not exact. For example, reversals may occur around 10 am EST, but not exactly at 10. It could occur at 9:50 or 10:06…or not at all. These are tendencies, not exact figures. Trading isn’t that easy.

What the Stock Market Tends to Do a Different Times of the Day

Time-based patterns are based on a time of day, not price direction. A reversal could be a reversal of whatever trend direction was occurring up to that point, if there was a trend.

9:30 am:

Traders come rushing in and the price often sees a quick push either high or lower. The price may bounce around for several minutes before picking a direction.

Lots of movement in first few minutes means it’s likely to be an active day, or at least start out that way.

If there isn’t a lot of movement in the first 15 minutes of the day, then it will probably be pretty quiet. Action could come up in later, but until it does, it will be quiet.

9:45 am:

There is often a big pullback or reversal around this time.

If the price had moved strongly after the open, now is the time to be careful. It could be a brief pullback, providing an entry into the existing trend, or it could be much more severe.

10 am to 10:30:

Around 10 am there’s often a major reversal in price. It could be temporary, or it could be significant. The high or low that occurs around this time will often last an hour or more, especially in individual stocks.

11:15 to 11:30 am

The London stock exchange closes at 11:30, which means a large group of European traders are finishing up for the day and won’t be trading the rest of the US session.

These traders may need to buy positions for their next day or close out positions. This 15-minute time window often sees the price head back toward a high or low, possibly re-testing it.

Heading into 11:30 is the usually the last bigger price move of the morning. Since a (European) group of traders is about to leave, and the New York lunch hour follows, these moves often fizzle out and turn into sideways chop.

11:30 am to 1:15 pm

12 to 1 pm is the New York lunch hour, and it is generally marked with lower volume and lower overall movement.

When I day traded for a prop firm, we had a guideline that no one on the floor traded during the NY lunch hour. It was notorious for chipping away at the gains made in the morning. Generally, it is best to avoid this time entirely as a day trader, unless you develop a strategy specifically for it.

1:15 to 2 pm

Action starts to pick up after the mid-day lull. A tight range during lunch will see the price breakout. Basically, we go from a contraction in movement to an expansion in movement.

Lunch isn’t always quiet. Some days there are big movements during lunch. If there were big moves, they much just continue without the breakout from a range.

2:15 to 2:45 pm

Possibly lunch saw a trend develop, or a trend developed after lunch. Sometimes as early as 2, but often between 215 and 245, there is a significant trend reversal. There may be several major swing during this time as action picks up heading into the close.

3 to 3:45

Lots of shakeouts occur in this period as well. There is often a major direction change in this time span as the price heads toward the close. This is the last chance to catch the remaining price moves of the day.

3:58 to 4 pm

As a day trader, unless the price is moving in your direction, consider closing out the position prior to this period. The last couple of minutes of the day can see extreme price movement, erasing (or adding to) existing gains or losses. Holding position into these final two minutes is a gamble on which way it will go.

At 4 pm, liquidity in many stocks disappears, which means you could be holding it till the next day if you don’t get out in time. Very high volume stocks will often continue to trade after the market officially closes, but once again, it’s a gamble on whether there’s any benefit to holding until the close.

A Note for All Times of Day

If these tendencies develop on a particular day, and we are watching for them, great. We can trade them. But don’t assume they will happen and make trades based on the assumption. If waiting for a reversal, wait till it actually starts and aligns with a strategy. Time of day patterns are not a strategy in and of themselves. A complete strategy requires entry, exit, position sizing, and other rules covered in the Trading Plan.

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Chart Examples of Time of Day Stock Patterns

I have written a number of articles on this topic over the years, as I have been tracking it since 2006.

Here’s a recent chart (not cherry-picked, just the day I started writing the article), followed by charts from decades past.

Time of day stock market patterns 2022
July 28, 2022 Time of Day Stock Market Patterns
Time of day patterns in S&P 500 2019
Chart example of time-of-day patterns from 2019
Time of day patterns in S&P 500 2019
Chart example of time-of-day patterns from 2019
Chart example of time of day patterns from 2013
Chart example of time-of-day patterns from 2013

Individual Stocks Versus Stock Index Intraday Patterns

These tendencies apply to individual stocks and indices, as indices are simply the average movement of a bunch of stocks.

That said, when trading individual stocks, or even a specific index, makes notes about how it moves.

There have been several times I’ve been trading a stock for a few weeks in a row and I notice that it has a very strong tendency to reverse around a certain of day. I will wait till the price starts reversing and pounce on it when it produces my trade trigger. I will keep doing it day after day until the dynamic changes. Maybe the reversal signal no longer comes at the expected time. Stop trading it and look for other ways to capitalize on the movements.

Factors to Consider for Time of Day Stock Patterns

A major news event will disrupt these patterns, and so will persistent news or overall sentiment that’s causing increased or decreased volatility.

As discussed, these tendencies are typical, and tend to materialize under typical conditions.

If overall volatility is high, then intraday movement will be heightened with trends and reversals accentuated.

In quiet times, maybe only the first hour or two of the day will have action, and maybe the last hour, as stocks are more likely to drift with no catalysts or investor interest to move them significantly.

Holidays can also affect these patterns. For example, around Christmas and New Years the stock market is open but there’s often much less volume than usual. That can translate to quiet days with little movement. There are exceptions, but if trading patterns, it’s important to understand the context around them, and what may affect them.

If you find these types of patterns useful, then use them. If you don’t, then don’t worry about them. There are many ways to trade. This is just something to consider adding to your trading if it interests you.

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By Cory Mitchell, CMT

Disclaimer: Nothing in this article is personal investment advice, or advice to buy or sell anything. Trading is risky and can result in substantial losses, even more than deposited if using leverage.

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