The standard trading hours for the Nasdaq Stock Market and the New York Stock Exchange (NYSE) are 9:30 a.m. ET to 4 p.m. ET on weekdays (unless when the stock market is closed for a holiday), as is generally known. The usual trading session ends at 1 p.m. ET on early-closure days, which typically fall just before, soon after, or during a stock market holiday.
However, trading can also be done beyond regular business hours on the stock exchange. For instance, during the pre-market trading session on days with a regular session, one can purchase or sell stocks. Typically, the pre-market session lasts from 4:30 a.m. ET until 9:30 a.m. ET. The after-hours trading session, which begins at 4 p.m. ET and finishes at 8 p.m. ET, also allows traders to purchase and sell equities.
Prior to the internet, only institutional investors and high-net-worth traders could purchase or sell during pre-market and after-hours trading sessions. However, thanks to technology improvements, smaller traders can now take part in these sessions.
Trading in extended sessions often involves placing an order through an electronic communication network on the exchange, just like one would during a regular session (ECN). Trades for equities can only be made using limit orders in the pre-market and after-hours sessions. An ECN automatically matches orders and only performs matches based on such set limitations.
Even while stocks can be traded before the market opens, during regular trading hours, and after hours, seasoned traders are aware that some times of the day are typically more active than others. These are referred to as power hours.
You should pick the busiest, most turbulent period to trade for best results. The “power hour” is referred to at this time. There are, however, a few details to consider. Even for a seasoned trader, predicting the direction of the market’s movement is not always simple. How do you decide when to place your transactions, and why is it crucial to take the surge in trading activity into account? What power hour stocks are, how to use them to maximize profit, and how to invest in them are all covered in this article.
What Exactly is a Stock Market Power Hour?
A short window of time in the stock market when significant, frequent trades are made is referred to as “power hour” by traders and investors. The value of indexes and equities both during and after the power hour period may be greatly impacted by these period.
Typically, the power hour period takes place between 9:30 a.m. to 10:30 a.m. ET and from 3 p.m. to 4 p.m. ET. The usual trading session’s start and end times are during those times.
In general, Friday and Monday are regarded as the two days of the week with the most unpredictable power hours. This is as a result of the stock’s closed Saturday and Sunday hours. Due to the fact that many traders frequently exit positions (such as expiring options contracts) on Fridays before the market closes, Friday typically features the most volatile power hour. There is a massive volume created as a result of the mad rush. Therefore, the considerable volatility caused by the enormous volume presents a potential for good profits.
Morning Power Hour from 9:30 to 10:30
The morning, lunch, and afternoon sessions are common divisions for traders to divide their trading day into. The morning and afternoon periods have the greatest volatility and price swings, with the exception of the lunchtime hour. Regularly choppy and trendless, midday sessions.
For this reason, day traders highly prize the morning power hour sessions. It not only enables some European traders to close out a profitable trade before their day is over, but it also has the highest volume. As a result, traders can enter and exit transactions with lots of liquidity.
The largest price movements of the day are frequently seen during the morning power hour session. Because a fresh trend is developing or continuing from the previous day, this is the time of day when traders choose to enter trades. Not only that, but the pace at which the movements take place can result in quick gains.
Having said that, the morning power hour session is frequently associated with retail buying. Many novice traders may place trades based on rumors or news from major television networks such as CNBC. It is also an excellent moment for short or long traps to appear.
Consider this AAPL example during power hour and compare it to the mid-day action that happens near 12pm.
The volume of AAPL was substantially higher in the first hour of the morning, as shown in the image above. Furthermore, price changes at this time caused the most volatility when compared to the middle of the day.
Afternoon Power Hour, 3pm – 4pm
The afternoon trading session, like the open, frequently sees a return to increased volume. It is also a moment when equities might experience sharp reversals and large swings. As a result, day traders frequently enter the market during the afternoon power hour.
In the preceding example, we saw AAPL at the morning power hour. Now consider how AAPL performs in the final hour of the day. Not only is there an increase in volume, but volatility has returned with a very quick reversal off the lows.
As you can see, the last portion of the day saw a significant spike in volatility and volume. Power hour can be a good opportunity for traders who aren’t used to trading volatility to take winnings and step back during these unpredictable times.
What Does Power Hour Signify in the Stock Market?
In the stock market, the power hour time frame simply denotes a typical period of increased volatility and volume during trading. The power hour is used by many day traders and institutions as a liquidity event to place larger buy and sell orders.
For example, an institution may be rebalancing a portfolio and wishes to place significant buy or sell orders after the market opens or closes. Because of the increased volume during the power hour, market participants can make these orders without disrupting the market during the mid-day.
The end-of-day power hour is also an excellent predictor of how the daily candle on a stock chart will close. As a result, stock traders may be looking to purchase or sell depending on the last hour of the day and the formation of the stock’s daily candle. Their assessment of the candle’s possible closing may impact their decision to long or short during power hour, which occurs just before the market closes at 4 p.m.
Expanding Industries to Trade During Power Hour in Stock Market
The advantages that the power hour provides you as a trader are substantial, but the impacts are much more evident in the case of specific equities. As you’ll discover later in this tutorial, the best trading methods during power hour all profit from a same set of conditions: high growth potential, high volatility, and high trading volume.
You can refine your search and receive better results by concentrating your efforts on a few major industries. All of these industries are fast expanding and have a lot of space for growth; becoming acquainted with them may also benefit you in the long term.
Technology Sector
Tech stocks are hot – when you think of getting in on the ground floor and making a fortune by investing in a firm in its early stages, most of us naturally assume it will be a tech company – the next Microsoft, Google, or Facebook. In reality, tech stocks exemplify the concept of a growth stock, accounting for more than a quarter of the total value of the S&P 500.
Although there are supply chain difficulties and geopolitical events to consider when investing in technology, the fact remains that the tech train is not slowing down. Despite the occasional hiccup, the industry has shown to be incredibly robust.
Other fields, such as blockchain, show promise as well; blockchain, in example, has the potential to achieve a market value of $56.7 billion by 2026, up from $6 billion in 2020. That equates to a CAGR of 56.9%, which is excellent given how volatile and unknown the business is.
Biotechnology Sector
Although biotechnology may appear to be something from the future, trust us when we say it is already here, and in a big manner. In fact, the biotech market was valued at $497 billion in 2020, with a CAGR of 9.4% expected to reach $952 billion by 2027.
Biotech, like the healthcare business, experienced a boost in part because of COVID-19, as evidenced by Moderna. Technological advancements, investor confidence, and a wide range of potential uses make this a promising market – but keep in mind that there is also a high level of risk and volatility.
Healthcare Sector
Since the Covid-19 outbreak began in 2019, the healthcare business has been on many people’s attention. Although the healthcare industry is well-known for successfully weathering recessions, it also has a lot of space for expansion.
The integration of IT and healthcare is a particularly promising area, and the market as a whole is expected to increase from $4.1 trillion to $6.2 trillion by 2028. Annual growth rates of 5% or higher are quite strong for a sector that has typically been employed for defensive stocks. Other specific fields, such as home healthcare or wearables, are also undergoing rapid growth and have promising possibilities, given the world’s aging population.
Cannabis Sector
The cannabis market is still in its infancy, but it has shown amazing development and is only going to get greater. Both the recreational and medical markets in North America are profitable.
The medicinal marijuana business was valued $22.4 billion in 2020, with some projections predicting that it will expand nearly fourfold to $87.4 billion by 2027. The compound annual growth rate is 19.3%, which is quite encouraging. The recreational marijuana sector has also taken root wherever it has emerged, with estimates of a 25% yearly growth rate not uncommon.
Keep in mind, however, that marijuana stocks are highly volatile. However, as more U.S. states and sophisticated countries legalize or decriminalize marijuana use, the market’s overall prospects look promising. There are certain to be a number of winners in that mix – if you can separate the bad company from the good one, trading those stocks during power hour can result in some pretty big gains.
Consider These Variables During Power Hour
We’ve established the fundamentals of power hours, as well as which companies and sectors ambitious traders should focus on – but there is a method to reduce the search even more and make the trading process more efficient overall.
There are a few variables that should always be considered regardless of which strategy is implemented. These criteria are not assurances of a successful trade, but considering their effects will raise the chances of a successful trade.
1. News Event as Catalysts
A corporation will frequently postpone breaking news until the end of the day. They could also make this available before the market opens. Depending on the news, it might or might not be good for the stock under consideration. A biotech stock, for instance, might learn that an FDA-approved medicine under development has been rejected.
Price activity frequently predicts news developments, although unexpected news might happen at any time. Before you place your trades, be sure to research the prospective announcements or goods that may be offered in the stock you are trading.
2. Events of Stock Offerings and Dilution
Stocks that are looking to raise funds for their underlying firm may frequently dilute their shares by issuing them to the market. This is more common with newer companies and cheap stocks.
One of the more heinous methods is to stock up on a press release and then file an offering late in the day. This has happened after hours, which can be disastrous for shareholders, but it can also cause havoc during power hour.
We present an example of a stock that was up more than 200% on the day with tremendous volume in our tutorial on the 3pm Bloodbath setup. It was then slammed with news of a stock offering about power hour, which destroyed the momentum and sent the price sliding south.
3. Economic and Federal Reserve News
Depending on the time of day when the Federal Reserve Chair speaks or when job and employment figures are released, the market can experience significant volatility. These figures are often issued closer to the start or end of the trading day.
The Federal Open Market Committee meetings normally deliberate whether to raise or lower interest rates, and then the Fed Chair makes the announcements at the end of the day. While it is impossible to foresee how the market will react to a Fed rate hike or fall, these power hour events are always characterized by increased price activity and volume.
Here is a recent analysis of AAPL following a Fed chair announcement just before power hour:
4. P/E Ratio
The P/E ratio, or price-to-earnings ratio, is one of the most essential investment metrics. Whatever you’re investing in or method you utilize, the P/E ratio should always be considered. It’s a simple formula: divide the share price by the earnings per share to get the P/E ratio.
Another way to look at it is that P/E shows the amount of money that must be invested in a company to make $1. The greater the ratio, the less desirable the company. In general, it is best to seek out companies with low P/E ratios.
However, this is not the case during the power hour. Stocks with a high P/E ratio are more volatile during power hours since they are more speculative in nature. This can provide numerous opportunities, but it also carries considerable risks.
5. Options
Options are financial derivatives that allow investors to buy or sell a stock at a predetermined price before a specific date. Investing in options is, by definition, forward-looking; keeping an eye on the options market can offer a trader a decent notion of how the market feels about a certain stock.
Many options traders trade options with a week-long expiry date, with the majority of them expiring on Friday. Pay close attention during Friday’s afternoon power hour; more activity in the options market can easily produce big fluctuations in stock price.
6. Triple Witching Hour
When stock options, futures contracts, and index contracts all expire at the same time, this is known as triple witching. This happens only four Fridays out of the year. This means that on these specific Fridays, volatility is exacerbated as institutions rebalance their portfolios based on options or futures expiration at the end of the day.
7. Quadruple Witching Hour
The last hours of trade on the third Friday of March, June, September, and December are known as quadruple witching hours. What is this weird event (also known as Freaky Friday by some)? It is the expiration date for stock market index futures, stock market index options, normal stock options, and single stock futures.
We’ve already discussed how derivatives, particularly options, can impact power hours; well, witching hours are power hours on steroids. When these days arrive (note them on your calendar), the market sees a massive surge in trade volume and volatility.
What Should We Do During Power Hours?Â
Although the conditions prevalent during power hours are also a good time to purchase or sell long-term stocks, they are far more essential (and the rewards are much more evident) when it comes to shorter-term tactics, commonly known as trading.
If you’re thinking about trading during power hour, there are a few factors you should bear in mind. As previously said, it is critical to have a strategy in place. You must understand when to buy and sell. You must also be able to stick to your plan.
Swing Trading Strategy
Swing trading is a popular trading method in general, and it also works well with the power hour. So, for those who are new to swing trading, let me explain how it works.
Swing trading, in a nutshell, is a middle-of-the-road technique that entails profiting from short- to medium-term price swings, with the entire process taking anywhere from a few days to a few weeks. This method necessitates preparation, study, and, most crucially, time.
The advantage of this method is that it is less stressful than day trading or scalping, and it is much simpler to maintain a cool head and rack up a string of good trades. We propose taking use of the afternoon power hour to get the most out of the swing trading/power hour combination. By selecting the second power hour, you will be able to determine how the stock has performed thus far and whether it should be bought, sold, or kept.
Day Trading Strategy
Day trading is a trading strategy in which a trader buys and sells the same security in a single day. Day trading differs from swing trading in that the former aims to profit from intraday changes in the price of a security.
Day trading and traditional buy-and-hold investing are diametrically opposed. Day trading works by gaining a lot of tiny, steady returns, relies on technical research, and involves a lot of concentration, focus, and commitment, whereas traditional investing focuses on sluggish capital appreciation over years, relies on fundamental analysis, and is a more hands-off technique.
Volatility increases during power hours, which is a benefit to day traders because volatility equals price movements, and price movements equal possibilities for day trading. It’s a dangerous technique that frequently takes steel nerves, but if you’re willing to devote a significant amount of time to research and developing a decent strategy, can keep a cool head, and know when to call it a day – day trading is something you should consider.
Keep in mind, however, that US-based brokerages (which includes the vast majority of the world’s largest brokerages) are required to follow SEC restrictions regarding pattern-day trading. To cut a long tale short, it is not possible to place a large number of trades until the account in question is worth more than $25,000 – but there are a few workarounds and exceptions to that restriction.
Scalping Strategy
Scalping is the quickest way to trade, and it prioritizes quantity above quality. Scalping is faster and more frequent than day trading because scalpers frequently perform hundreds of trades every day.
Scalp trades can last anywhere from a few seconds to a few minutes and are entirely based on technical analysis. If you want to scalp (and many traders with modest accounts do), look for a brokerage that provides level 2 quotations, direct market access, and high execution rates.
To execute a scalping strategy successfully, two things are required: first, a solid understanding of stock chart patterns, and second, a laser-focused picture of what’s going on in the form of a one-minute chart or a tick. Traders should also keep an eye out for an increase in trading volume – a nice chart pattern and higher trading volume give a reasonably good indication of what a stock’s price will do.
Do Stock Price Rise During Power Hours?Â
It is determined by the stock and market conditions. A large move to the upside or fall is possible. It is critical to have a plan in place for either possible outcome. If you anticipate that power hour will result in a bull trend, you may be able to benefit quickly before the market shuts.
However, if your analysis leads you to believe that the market will continue to decline until the closing bell, you can take some short positions. This will allow you to profit if the market collapses as predicted.
You could possibly wait until the last few minutes and buy as much as you can if the company is fundamentally sound. As previously said, this method allows you to buy additional shares at a lower cost and sell them for a profit at a later point.
Before entering any trade, you should conduct research and prepare a strategy. This way, you’ll be ready for anything that may occur during power hour. It shouldn’t matter if you’re up or down if you know what you’re doing.
Is It a Good Idea to Avoid Trading During Power Hour?
You should avoid trading during power hours if you are not comfortable with it. If you don’t have the stomach for it, it’s not worth putting your money at risk. Because of the increasing instability, many people avoid power hours.
Another reason to avoid power hour is if you do not have a plan or a clear grasp of how the market will move. You may minimise your losses and protect your capital by avoiding power hours.
Power hours should also be avoided by emotionally motivated traders. This is because they may make rash decisions that result in large losses. Time constraints combined with social confirmation of a trading direction might be a recipe for catastrophe.
Of course, this does not stop you from trading during power hours. Go for it if you are okay with the higher risk and have a plan. Just be sure you know what you’re doing before putting your money at risk.
Is Power Hour Stock Trading Right for You?
We’re almost done with this tutorial, and we’ve covered all of the advantages that a power hour may provide to traders (and there are a lot of them). That’s all well and good, but we always attempt to explore a subject thoroughly, which includes discussing the disadvantages.
So, are there any disadvantages to the power hour? Not precisely, but it’s not as simple as a yes or no question. True, power hours boost trade volume and volatility, implying that possibilities abound; nonetheless, this information may be of little importance to certain investors.
The benefits of the power hour factor into speculative trading. You should not be concerned with these methods or the power hour if you are not skilled in making short-term trades, are not willing to face losses, and do not have the requisite time or know how to undertake technical analysis. Simply told, these tactics aren’t appropriate for newcomers.
However, if you’re already relatively experienced, prepared to take some losses, and have a good enough understanding of trading psychology to retain your calm, you should try these tactics.
Conclusion
Power hour stocks are ideal for traders aiming for quick profits. However, you must be aware of what you are doing. This period of high volume and volatility is typically triggered by recent earnings reports or other stock-related news.
If the news is positive, it stands to reason that the power hour will be positive as well. If the news is unsatisfactory, bearish power is expected. Market activity is typically intense during power hours, which increases the likelihood of dangers.
Power hour opportunities are absolutely worth taking advantage of for day traders and others employing other short-term tactics. Trading during or immediately after a power hour can help you maximize your gains while minimizing your losses.