The 10 A.M. Rule For Stocks And Options
By Ultimate Trading
The Best Time Of Day To Buy Stocks And Options
Sometimes its wise not to be the early bird, to instead wait and
see what the day will bring before you take action. The 10 A.M. rule
is a great example of this concept, and is an example that protects
your capital. Let's say you want to buy some
and options, for whatever reason; a trend play, or a market
rally that you think a currently hot sector will participate in. You
know that a great time to buy would be on a gap down, but the market
is in rally mode and instead of gapping down, the stocks and options
gaps up. But buying the gap up is a bad trade. Now what do you do?
You use the 10 A.M. rule, and wait until after 10 A.M. to buy your
stocks and options. If the stocks and options make a new high for
the day after 10 A.M., then, and only then, should you trade the
stocks and options. Of course, you will use stops to protect
yourself, like you would on any trade.
Anyone who's followed the market knows that stocks and options will
often gap up early in the morning, only to suddenly sell off and
reverse into negative territory. By following the 10 A.M. rule, you
avoid the risk of this sudden reversal. If the stocks and options
make it to a new high after 10 A.M., there is still trader interest
in the stocks and options, and it stands a good chance of gaining
momentum and heading even higher.
Here is an example of the 10 A.M. rule on a gap up: A stock closes
the day at $145. After hours, the company announces a two-for-one
stock split. The next morning the stock gaps up to open at $161. It
trades as high as $166 before 10 A.M. For two hours after 10 A.M. it
trades lower and doesn't reach $166. At 2 P.M., it hits $166.50. The
stock is now safe to buy, using the 10 A.M. rule.
Using a version of the 10 A.M. rule, you could watch for a hot
sector to appear in the morning and follow the stocks and options in
the sector that are up for the day. If the stocks and options are
still making new highs at midday, they stand a good chance of
finishing the day near their ultimate highs for the day, and could
be good trading opportunities.
This also applies in a down market and to stocks and options that
gap down, opening at prices lower than where they closed the
previous day. In this situation, you should not short a stock that
has gapped down unless and until it makes a new low for the day
after 10 A.M.
Using the 10 A.M. rule ensures that you will never end up chasing
and options when your chances of making a profitable trade are
low. Remember, trading is all about probabilities. The more trades
you make with a high probability of success, the more successful you
will be. The 10 A.M. rule is a valuable addition to your trading
plan, giving you a straightforward way to avoid making costly
mistakes and to increase your number of profitable trades.
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