While the U.S. stock market is technically open from 9:30 AM to 4 PM EST every trading day, attentive stock traders know that some hours of the day are more active than others.
Traders have a name for that window of opportunity — they call it the “Power Hour”.
Depending on who you talk to, the Power Hour can be the first hour of trading (from 9:30 to 10:30 EST) or the last hour of trading (3:30 to 4:30 EST). Derivative traders may argue that the time is even more specific, such as at 3:30 on the third Friday of every month in March, June, September, and December when option, futures and index contracts all expire on the same day. They call it “triple witching hour”.
Power Hours can be subjective: A day trader who only trades a few hours a day may decide the first hour of the trading session is what matters — or they may hone in on the last hour if the goal is to get out of a current position or buy into a new one.
Past that, there is some agreement over what the stock market Power Hour actually means to investors. Here’s a closer look at the Power Hour, and what it might mean to you.
What is the Stock Market Power Hour?
With the Power Hour, stock market traders have a concentrated time to leverage specific market opportunities. That goes for anyone trading common market securities like stocks, index funds, commodities, currencies, and derivatives, especially options trading and futures.
When Does Stock Power Hour Occur?
Most market observers land on two specific times, however, in defining the term:
• The first trading hour of the market day. This is when news flows in overnight from across the world that can impact portfolio positions that investors may want to leverage.
• The last hour of the trading day. This is when sellers may be anxious to close a position for the day, and buyers may be in a position to pounce and buy low when selling activity is high.
One commonality between the first hour of a stock market trading session and the last hour is that trading volatility tends to be higher than it is during the middle of a normal trading day. That’s primarily because traders are looking to buy or sell when demand for trading is robust, and that usually happens at or near the market opening or the market closing.
Each Power Hour brings something different to the table, when it comes to potential investing opportunities.
Power Hour Start of Day
The first hour of any trading session tends to be the most active, as traders react to overnight news and data numbers and stake out advantageous positions.
For example, an investor may have watched CNBC or Fox Business the previous night, and is now reacting to a story, interview, or prediction made on a show the night before.
Some traders refer to this scenario as “stupid money” trading, as conventional wisdom holds that one news event or one interview with a Fortune 500 CEO shouldn’t sway an investor from a strategy-guided long-term investment position. The fact is, by the time the average investor reacts to overnight data, it’s likely the chance for profit is already gone.
Here’s why: Most professional day traders were likely already aware of the news, and have already priced that information into their portfolios. As the price goes up on a stock based on artificial demand, the professional traders typically step in and take the other side of the trade, knowing that in the long run, investing money will drift back to the original trade price for the stock and the professional investor will likely end up making money.
Power Hour End of Day
The last hour of the trading day may also come with high market volatility, which tends to generate more stock trading. Many professional traders tend to trade actively in the morning session and step back during mid-day trading, when volatility is lower and the market is quieter than in the first and last hours of the day.
Regular traders can perk up at the last hour of trading, where trading is typically more abundant and the size of trades generally climb as more buyers and sellers engage before the trading session closes out. Just as in the first hour of the trading day, amateur investors tend to wade into the markets, buying and selling on the day’s news.
That activity can attract bigger, more seasoned traders who may be looking to take advantage of ill-considered positions by average investors, which increases market trading toward the close.
Red Flags and Triggers to Look for During Power Hour Trading
For any investor looking to gain an advantage during Power Hour trading, the idea is to look for specific market news that can spike market activity and heighten the chances of making a profit in the stock market.
These “triggers” may signal an imminent Power Hour market period, when trading can grow more volatile.
Any Earnings Report
Publicly-traded companies are obligated to release company earnings on a quarterly basis. When larger companies release earnings, the news has a tendency to move the financial markets. Depending on whether the earnings news comes in the morning or after hours, investors can typically expect higher trading to follow. That could lead to heavier Power Hour trading.
News on Big “Daily Gainers”
Stock market trading activity can grow more intense when specific economic or company news pushes a single large stock — or stock sector — into volatile trading territory.
For instance, if a technology company X announces a new smartphone release, investors may want to pounce and buy the stock, hoping for a significant share price uptick. That can lead to higher volume trading stock X, making the company and the market more volatile (especially later in the day), thus ensuring an active Power Hour trading time.
Federal Reserve/Economic News
Major economic news, like jobs reports, consumer sentiment, inflation rates, and gross domestic product (GDP) reports, are released in the morning. Big news from the Federal Reserve typically comes later in the day, after a key speech by a Fed officer or news of an interest rate move after a Fed Open Markets Committee meeting.
Make no mistake, news on both fronts can be big market movers, and can lead to even more powerful Power Hour trading sessions. Anticipation of huge economic news, like a Federal Reserve interest rate hike or the release of the U.S. government’s monthly non-farm labor report, can move markets before the actual news is released, potentially fueling an even larger trading surge after the news is released, either at the open (for government economic news) or at the end of the trading day (for Federal Reserve news).
Triple Witching Hour Events
Quarterly triple witching hours — when stock options, futures and index contracts expire on four separate Fridays during the year — historically have had a substantial impact on market activity on those Friday afternoons, in advance of the contracts expiring at the days’ end.
When options contracts involving larger companies expire, market activity on a Friday afternoon prior to closing can be especially volatile. Thus, any late afternoon Power Hour on a triple-witching-hour Friday can be highly active, and may be one of the largest drivers of Power Hour trading during the year.
The concept of a stock market “Power Hour” is very real, but so is the risk of trading in more volatile markets when Power Hours tend to be more active.
Consequently, it’s a good idea to give Power Hours a wide berth if you’re not familiar with trading in choppy markets, where the risk of losing money is high when Power Trading activity is at its highest.
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Photo credit: iStock/Tatiana Sviridova
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