I analyzed more than 14,000 day-trading candles, and what I found was really interesting.
It increases our win rate and helps us book bigger profits.
Let me ask you this: do you know the best moment to take a day trade?
Like, the stock market is open for many hours, but do you know when it gives a higher probability of making money?
Well, let me show you the data.
Basically, I analyzed every single day’s price movement on the 5-minute timeframe.
I did this for multiple popular stock market indices.
In total, I analyzed more than 14,000 candles.
Using this data, I created a momentum chart showing at what point during the market open the price makes really good moves.
In other words, it shows when the price makes relatively big moves and when it usually stays flat.
This is what that data looks like.
The semi-transparent gray lines are the momentum of each day I analyzed, and the thick red line is their middle point.
Pay attention to that red line because it tells us a really useful story.
You see, if you are day-trading in the stock market, you should avoid taking momentum trades in the afternoon, like after the first two three hours of the market open.
Because the price momentum is really low during this time.
To make big profits, you need a big price move, but the price rarely makes big moves after the first two three hours of the market open.
Not only that, but since the momentum is usually low, the price often won’t go that far in the entry direction and will have a higher probability of reversing and triggering your stop-loss.
That will result in a lower win rate for momentum setups.
When I was trading strong momentum setups on the smaller stock market timeframes, I used to take most of my trades in the first hour or two of the market open.
And after taking thousands of trades in the live market, I noticed that’s when my win rate was higher because the momentum was higher.
Even in this data, we can clearly see that the momentum is much stronger in the first 60 to 90 minutes compared to the rest of the day.
The only time the momentum usually rises again is near the market close.
If a news event happens in the middle of the day, the momentum can spike, of course.
But according to the data, the momentum in the first hour or two is really good most of the time.
So, if we want a higher win rate and want to make bigger profits while trading momentum strategies, it’s a good idea to trade in the first hour or two of the market open.
That’s all!