What Is the Two-Hour-a-Day Trading Plan? (2024)

The purpose of investing is to make money. But it can be a risky business that comes with both gains and losses. Almost every investor knows that you have to understand how things work if you want to make money. So if you're investing in a stock, you need to come to the table prepared with knowledge about the company, earnings, growth potential, risk factors, and the overall market among other things.

You should also come up with a suitable trading strategy that caters to your needs and investment goals. This article looks at a plan that takes advantage of the surge of activity in the first and last hours of the trading day, commonly referred to as the two-hour-a-day trading plan.

Key Takeaways

  • The two-hour-a-day trading plan involves executing transactions during the first and last hours of the trading day.
  • Volume tends to jump during these two hours of the day.
  • Setting limit orders allows you to profit from swings during these key trading hours.
  • You can avoid the pattern day trader rule by buying shares today and selling them tomorrow.
  • Gap trading helps savvy traders identify the stocks that will open or close at a price that will net them a profit.

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

If you work a 9 to 5 job and use your evening hours to research stocks and place trade orders for the next day, you (and others like you) are the reason for the first hour of high volume. As soon as the stock market opens, a rush of programmed trades enter the market and are quickly filled.

Along with the trades executed for retail investors, much of the volume comes from mutual funds, hedge funds, and other high-volume traders. Day traders also set their positions for the day during the first hour. All of these factors added together represent a large amount of volume in a short amount of time.

A common rule among day traders is to always end their day without any stock positions, so they must sell their positions at the end of the day. Retail investors who want to avoid day trading rules may purchase stocks at the end of the day, so they are free to sell them the next day if they wish. Some institutions often do not wish to hold large positions over long weekends or holidays when they have no means of liquidating, especially when a big event takes place.

So how can you profit from this phenomenon or at least minimize the chance of a loss? Here are a few ways you can come out on top.

Volume Research

Trading volume is a metric that many traders keep an eye on, so it's important that you understand what it is and how it works.

Volume measures the degree to which an asset is traded during a given period of time. Stock volume tells you how many shares are traded within a specific period. As such, it can provide you with some insight into the mood of the market. For instance, a heavily-traded stock typically indicates a strong market and rising investor interest. And if there's not much volume, there's a very good chance that there's not much interest in the company.

When you research a stock, look at the amount of volatility in the first and last hours of trading. If it tends to be very volatile during those hours, you may be able to buy or sell at a price that is higher or lower than its fundamental value. Set your limit orders unusually high or low to see if you can catch a great bargain in the early minutes of trading.

A stock's price and trading volume should work in conjunction with one another. If they don't, it may indicate that the trend is weakening and may reverse its course.

Use Limit Orders

We mentioned limit orders in the previous section. You can safely trade during the first and last hours of the trading day if you stay disciplined, and the best way to do this is to use limit orders. But what exactly are they?

Limit orders allow you to buy or sell stocks at a certain price or one that's even better. Buy limit orders are only completed at the limit or lower price and the opposite is true for sell limit orders. That is, they are executed at the set limit or higher price.

Still confused? Here's a hypothetical example to show how they work. Let's say you own stock in Company XYZ and don't want to sell them for less than $34.00 per share. You can place a sell order with your broker and set your limit price at $34.00. This way, you're guaranteed to sell your stock at your limit price or better if it gets there. The same strategy can be used when you buy a certain stock.

Limit orders are not guaranteed to be filled.

Trade Today for Tomorrow

Traders who buy and sell a stock on the same day any more than four times in a period of five business days in a margin account (which uses borrowed capital from the broker) are referred to as pattern day traders (PDTs). This is a strategy that is only meant for individuals who are well-versed in trading and the markets. These traders use speculation to make trades within a single day, which allows them to close out all their positions by the end of the day.

In order to trade using the pattern day trader rule, you must be classified as such with your brokerage firm. This means retail investors aren't permitted to use day trading strategies. But there may be instances where you feel you could benefit from multiple trades during the day, so how do you get around this?

Investors can avoid this rule by buying at the end of the day and selling the next day. A trader could hold a stock for less than 24 hours while avoiding day trading rules using this method. Be aware that short-term trading strategies often come with a lot of risks, so it's important to consider careful research and risk management.

Gap Trading

Another way you can take advantage of the two-hour-a-day plan is to employ a gap trading strategy. A gap represents an area of a stock chart when the price takes a sharp move up or down. There is usually very little trading activity—if any at all—that takes place. You can take advantage of and profit from any gaps if you understand them.

Here's an example. Let's say you purchased stock in Company ABC for $30 today and the company announces its quarterly earnings after the market closes. Suppose you feel that the stock will rise to $35 after the announcement, which means when the market opens the next day, the company's stock will begin trading at $35. If you're correct, this creates a $5 gap in the chart, representing a $5 per share profit for you.

What Is the Two Hour a Day Trading Plan?

The two-hour-a-day trading plan involves trading during some of the busiest hours of the trading day. As such, the plan normally refers to the first and last hours of the business day.

How Often Can You Buy and Sell the Same Stock?

As a retail investor, you can't buy and sell the same stock more than four times within a five-business-day period. Anyone who exceeds this violates the pattern day trader rule, which is reserved for individuals who are classified by their brokers are day traders and can be restricted from conducting any trades.

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

Investors who buy and sell stocks on the same day are called day traders or pattern day traders. These individuals close out their positions at the end of the day.

What Happens If You Sell and Buy Stock Same Day?

If you're already registered to be a day trader, you're all set. But if you're not, your account could be flagged and your account may be restricted. Check with your broker about the rules for executing multiple transactions for the same stock within a single day.

The Bottom Line

Whether or not you avoid these hours altogether or aim to confine your trading to these hours largely depends on your risk appetite and experience with the market. Whether you're a new or inexperienced investor, make sure you move carefully during these times. If you don't, you may end up with higher losses at the end of the day.

What Is the Two-Hour-a-Day Trading Plan? (2024)

FAQs

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

The two-hour-a-day trading plan involves executing transactions during the first and last hours of the trading day. Volume tends to jump during these two hours of the day. Setting limit orders allows you to profit from swings during these key trading hours.

What is the 2 hour a day trading plan? ›

The term “2-hour trading strategy” describes a time-based approach to trading in which a trader actively buys and sells financial assets within a two-hour window, usually during the hours of the market that are the most volatile.

Can you day trade 2 hours a day? ›

Ultimately, how many hours you day trade is up to you. For me, 0.5 to 2 hours works well. It means I can get up early and be done “work” when most people are just starting their commute.

What is the 2 rule in trading? ›

Overall, the 2% rule is a fundamental principle of risk management in trading. By limiting the amount of capital risked on each trade to 2%, traders can protect their capital, manage their risk effectively, and increase their chances of long-term success in the markets.

What is the trading hour per day? ›

Key Takeaways

Regular trading hours for the NYSE and Nasdaq are Monday through Friday from 9:30 a.m. to 4 p.m.

Can you make 200 a day with day trading? ›

A common approach for new day traders is to start with a goal of $200 per day and work up to $800-$1000 over time. Small winners are better than home runs because it forces you to stay on your plan and use discipline. Sure, you'll hit a big winner every now and then, but consistency is the real key to day trading.

Can I sell CNC stock on the same day in Zerodha? ›

However, individuals can sell the stocks from their holdings when using this particular product type. Did you know? When using CNC to buy and sell a share within the same day, it will still be regarded as an intraday trade, and the brokerage charges will be applied accordingly.

What is the best chart for day trading? ›

Candlestick charts are perhaps the most widely used among active traders. In some ways, candlestick charts blend the benefits of line and bar charts as they convey both time and impact value. Each candlestick represents a specific timeframe and displays opening, closing, high, and low prices.

Is it legal to buy and sell the same stock repeatedly? ›

Just as how long you have to wait to sell a stock after buying it, there is no legal limit on the number of times you can buy and sell the same stock in one day. Again, though, your broker may impose restrictions based on your account type, available capital, and regulatory rules regarding 'Pattern Day Traders'.

Can I day trade with $5000? ›

A day trade is when you purchase or short a security and then sell or cover the same security in the same day. Essentially, if you have a $5,000 account, you can only make three-day trades in any rolling five-day period.

What is the 80% rule in day trading? ›

Definition of '80% Rule'

The 80% Rule is a Market Profile concept and strategy. If the market opens (or moves outside of the value area ) and then moves back into the value area for two consecutive 30-min-bars, then the 80% rule states that there is a high probability of completely filling the value area.

What is 90% rule in trading? ›

Understanding the Rule of 90

According to this rule, 90% of novice traders will experience significant losses within their first 90 days of trading, ultimately wiping out 90% of their initial capital.

What is No 1 rule of trading? ›

Rule 1: Always Use a Trading Plan

You need a trading plan because it can assist you with making coherent trading decisions and define the boundaries of your optimal trade. A decent trading plan will assist you with avoiding making passionate decisions without giving it much thought.

Is day trading illegal? ›

Day trading is not illegal when it is done within normal trade hours and properly recorded. However, a similar practice known as late day trading is illegal and can be prosecuted under commodities fraud law.

What is the best hour to day trade? ›

The best times to day trade

Day traders need liquidity and volatility, and the stock market offers those most frequently in the hours after it opens, from 9:30 a.m. to about noon ET, and then in the last hour of trading before the close at 4 p.m. ET.

How to avoid PDT rule? ›

How to Avoid the Pattern Day Trading Rule
  1. Open a cash account. If a day trader wants to avoid pattern day trader status, they can open cash accounts. ...
  2. Use multiple brokerage accounts to avoid the PDT Rule. ...
  3. Have an offshore account. ...
  4. Trade Forex and Futures to avoid the PDT Rule. ...
  5. Options trading.
Dec 30, 2022

How much do day traders make per hour? ›

As of May 1, 2024, the average hourly pay for a Day Trader in Michigan is $38.98 an hour. While ZipRecruiter is seeing salaries as high as $112.93 and as low as $16.55, the majority of Day Trader salaries currently range between $23.65 (25th percentile) to $44.23 (75th percentile) in Michigan.

What is the 10 am rule in stock trading? ›

Traders that follow the 10 a.m. rule think a stock's price trajectory is relatively set for the day by the end of that half-hour. For example, if a stock closed at $40 the previous day, opened at $42 the next, and reached $43 by 10 a.m., this would indicate that the stock is likely to remain above $42 by market close.

How much money do day traders with $10,000 accounts make per day on average? ›

With a $10,000 account, a good day might bring in a five percent gain, which is $500. However, day traders also need to consider fixed costs such as commissions charged by brokers. These commissions can eat into profits, and day traders need to earn enough to overcome these fees [2].

Is 1 hour chart good for day trading? ›

For some forex traders, they feel most comfortable trading the 1-hour charts. This time frame is longer, but not too long, and trade signals are fewer, but not too few. Trading on this time frame helps give more time to analyze the market and not feel so rushed.

Top Articles
Latest Posts
Recommended Articles
Article information

Author: Wyatt Volkman LLD

Last Updated:

Views: 6317

Rating: 4.6 / 5 (66 voted)

Reviews: 81% of readers found this page helpful

Author information

Name: Wyatt Volkman LLD

Birthday: 1992-02-16

Address: Suite 851 78549 Lubowitz Well, Wardside, TX 98080-8615

Phone: +67618977178100

Job: Manufacturing Director

Hobby: Running, Mountaineering, Inline skating, Writing, Baton twirling, Computer programming, Stone skipping

Introduction: My name is Wyatt Volkman LLD, I am a handsome, rich, comfortable, lively, zealous, graceful, gifted person who loves writing and wants to share my knowledge and understanding with you.