The First Hour of Market Opening: A Place for Professional Traders?

It is a common belief among amateur and retail traders that professional traders avoid trading during the first hour of market opening. However, this notion is more often than not an oversimplification. In this article, we will explore the reasons why some professional traders choose to stay away from the first hour and the counterarguments presented by seasoned traders. We will also highlight the factors that make the first hour and the last hour of trading distinct in terms of volatility, liquidity, and reliability.

Understanding Market Volatility

While it is true that the first hour of trading sees significant price fluctuations due to the market's reaction to news and events from the previous night, this period is not automatically off-limits for all professional traders. Market volatility can sometimes present excellent opportunities for skilled traders to enter the market.

Liquidity and Reliability

Liquidity issues also come into play during the opening hour. High trading volume can lead to more dramatic price movements as larger orders can impact the market more significantly. For retail traders, market orders during this period can exacerbate volatility. Professional traders often prefer to wait for the market to stabilize before making trades. However, the last hour of trading tends to be more reliable because traders are more likely to hold their positions until the next market opening, or even longer.

Setting Up Positions and Waiting for Signals

Some traders, particularly those with a specific trading style, may choose to use the first hour to gather information and analyze price action. They wait for patterns and signals to develop after the initial volatility. Skilled traders like those mentioned in the article often trade opportunistically based on real-time market data, rather than following vague generalizations.

Examples from Professional Traders

To illustrate, let's consider a real-world example. The morning of the FDA approval announcement for NNOX's IMAGING technology, the opening price jumped nearly 25 points. A professional trader, after observing this quickly rising price, advised a friend to sell immediately. The friend, however, hesitated, leading to a much worse outcome as the price eventually dipped back to where it was a few days earlier.

Conclusion

While not all professional traders avoid the opening hour, many do choose to wait for a more stable environment. Individual trading styles and strategies play a significant role in determining the most effective time to enter the market. The belief that professional traders universally avoid the first hour is a common misconception. A closer look reveals that the first hour and the last hour each have their unique characteristics and opportunities, making them suitable for different types of traders based on their goals and strategies.

For professional traders, the first hour is not necessarily to be avoided. Rather, it is a period that requires careful analysis and well-thought-out strategies. Whether you are an amateur or a seasoned trader, understanding the dynamics of the market can help you make more informed decisions during this critical time.