Market conditions can change greatly throughout the trading day, with the opening and closing of the market generally known to experience high volatility, with the middle of the session less prone to such movements.
Specifically the opening of the Australian market is generally the most volatile time in our trading day. This is largely due to our market digesting world events and movements of some of the world’s most influential markets. This is a time of price discovery and increased volatility is likely to result, which can cause a gap in price from the close of the previous trading day – precisely the reason why some traders may prefer not to stay in a position overnight or over a weekend.
Conversely, many may see this as a time of opportunity, taking advantage of the short term volatility the market open brings.
For example, based on strong gains in metals prices overnight, a short term trader may decide to take a position on a stock, which could be directly affected by metals prices, in order to gain access to the opening price, thus a confident (strong) bid would be placed in the market prior to the open with the hope of a rise throughout the day. Another trader may believe the same stock will open strong and fall sharply in early hours of the session, thus taking a short position.
There are many examples of how trading at various times of the day can impact your trades, but the belief that there is a more appropriate time to enter the market – or close your position before the market close – is that of personal preference. This preference would depend on the how strong your view is, and more importantly, how long you intend to hold the position.
Harley Salt, Senior Sales Trader, IG Markets