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Do Not Trade at the Open?

| | Posted in: Calendar Effects

A reader noted and asked: “I frequently read that one should not trade at the open, because the smart traders manipulate opening prices to scalp the naive. Does it really help to wait a half hour (or whatever) before trading?”


The following research summaries are relevant:

“Intraday/Daily Stock Return Patterns”, which finds repetition of intraday patterns from day to day but does not find a pattern that always holds. In other words, if it was good (bad) to trade at the open today, there is some tendency for it being good (bad) to trade at the open tomorrow.

“Buy at the Close and Sell at the Open?”, which finds that buying at the open may not be so smart on average.

“Trade Against Overnight Moves?”, which finds that buying at the open may sometimes be indicated (when the price has fallen overnight).

The overall answer is therefore probably “sometimes but not always.” In general, these indications are likely small with respect to daily volatility.

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