The Two-Hour-a-Day Trading Plan

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The Two-Hour-a-Day Trading Plan

The goal of investing is to profit. However, it may be a dangerous enterprise with both rewards and losses. Almost every investor understands that in order to generate money, you must first understand how things function. So, if you’re going to buy in a stock, you should come prepared with information on the business, profits, growth potential, risk factors, and the broader market, among other things.

You should also devise a trading strategy that meets your demands and investing objectives. This article examines the two-hour-a-day trading strategy, which takes advantage of the rush of activity in the start and end hours of the trading day.

Key Takeaways

  • The two-hour trading strategy entails carrying out transactions in the start and final hours of the trading day.
  • During these two hours of the day, volume tends to spike.
  • Limit orders enable you to benefit from fluctuations during these critical trading hours.
  • By purchasing shares now and selling them tomorrow, you may dodge the pattern day trader rule.
  • Gap trading assists skilled traders in identifying equities that will open or close at a profitable price.

What Is the Two-Hour-a-Day Trading Plan?

If you have a 9-to-5 job and spend your evenings researching stocks and placing trading orders for the following day, you (and others like you) are to blame for the first hour of high volume. When the stock market starts, a flood of pre-programmed transactions enters the market and is promptly filled.

Along with transactions performed for regular investors, mutual funds, hedge funds, and other high-volume traders account for a large portion of the volume. During the first hour, day traders also establish their positions for the day. All of these elements add up to a big quantity of volume in a short period of time.

A typical guideline among day traders is to always finish the day with no stock holdings, thus they must liquidate their investments. Retail investors who want to evade day trading regulations may buy equities at the end of the day and sell them the following day if they desire. Some institutions often do not want to keep significant holdings over lengthy weekends or vacations when they have no way of liquidation them, particularly when a major event occurs.

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So, how can you benefit from this phenomena or, at the very least, reduce your chances of losing money? Here are a few strategies to help you win.

Volume Research

Trading volume is a parameter that many traders monitor, so you should grasp what it is and how it works.

Volume is a measure of how much an asset is traded in a certain period of time. Stock volume indicates how many shares were exchanged over a certain time period. As such, it might provide you some insight into the market’s sentiment. A widely traded stock, for example, often implies a healthy market and increased investor interest. And if there isn’t much volume, chances are there isn’t much interest in the firm.

When researching a stock, consider the volatility in the first and final hours of trading. If it is very volatile during those hours, you may be able to purchase or sell at a price higher or lower than its basic worth. Set your limit orders to extremely high or low levels to see if you may get a nice deal in the early hours of trading.

The price of a stock and its trading volume should function in tandem. If they don’t, it might indicate that the trend is deteriorating and about to reverse.

Use Limit Orders

In the last part, we discussed limit orders. If you remain disciplined, you may trade securely throughout the early and end hours of the trading day, and the easiest method to do it is to utilize limit orders. But what are they exactly?

Limit orders enable you to purchase or sell stocks at a certain or better price. Buy limit orders are only filled at the limit or a lower price, while sell limit orders are the reverse. That is, they are carried out at the predetermined limit or at a greater price.

Still perplexed? Here’s an example to demonstrate how they function. Assume you possess stock in Company XYZ and refuse to sell it for less than $34.00 a share. You may use your broker to issue a sell order with a limit price of $34.00. This way, you’re assured to sell your stock at or over your maximum price if it reaches it. When purchasing a stock, you may use the same method.

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Limit orders are not guaranteed to be filled.

Trade Today for Tomorrow

Pattern day traders are traders who purchase and sell a stock on the same day more than four times in a five-day period on a margin account (which utilizes borrowed funds from the broker) (PDTs).This is a method intended primarily for experienced traders and market participants. These traders employ speculation to complete all of their deals in a single day, allowing them to close out all of their positions before the end of the day.

To use the pattern day trader rule, you must be classed as one by your brokerage business. This implies that day trading tactics are not permissible for regular investors. However, there may be times when you believe you may gain from many transactions throughout the day; how can you avoid this?

This regulation may be avoided by purchasing towards the end of the day and selling the following day. Using this strategy, a trader might hold a stock for less than 24 hours yet circumventing day trading laws. Be aware that short-term trading tactics generally carry a high level of risk, therefore thorough research and risk management are essential.

Gap Trading

A gap trading method is another approach to take advantage of the two-hour-a-day plan. A gap is an area in a stock chart where the price moves sharply up or down. There is often very little trade activity, if any at all. If you understand the loopholes, you can exploit and benefit from them.

Here’s an illustration. Assume you bought shares in Firm ABC today for $30, and the company reports its quarterly profits after the market closes. Assume you believe the price will climb to $35 following the announcement, which implies the company’s shares will begin trading at $35 when the market opens the next day. If you are accurate, this results in a $5 gap in the chart, reflecting a $5 profit per share for you.

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What Is the Two Hour a Day Trading Plan?

Trading during the peak hours of the trading day is part of the two-hour trading strategy. As a result, the plan usually refers to the start and end hours of the workday.

How Often Can You Buy and Sell the Same Stock?

You cannot purchase and sell the same stock more than four times in a five-business-day period as a retail investor. Anyone who surpasses this breaches the pattern day trader rule, which is designated for those who are classed as day traders by their brokers and may be barred from trading.

What Are Investors Who Buy and Sell Stock in the Same Day Called?

Day traders or pattern day traders are investors who purchase and sell equities on the same day. At the end of the day, these people leave their jobs.

What Happens If You Sell and Buy Stock Same Day?

You’re all set if you’re already registered as a day trader. However, if you are not, your account may be detected and limited. Check with your broker to see what the regulations are for performing multiple transactions for the same stock on the same day.

The Bottom Line

Whether you skip these hours entirely or attempt to limit your trading to these hours is primarily determined by your risk tolerance and market experience. If you are a novice or inexperienced investor, proceed with caution at these times. If you don’t, your losses may be larger at the end of the day.

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