The best time of the day to trade? hint: you can sleep-in
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Comparison of the two indicators
The smart money index assumes that small investors trade early in the day while professionals trade late in the day, and seeks to draw predictive conclusions from a review of the trading during these periods. The amateur / professional indicator recommends that small investors avoid these two periods.
Conclusion
We can relate to the underlying premise of these theories. How many times have we ourselves thought long and hard about whether to trade a security, only to get up one morning and immediately want to implement our decision i.e. to place a trade at the opening of the market. And we suspect that we are not alone in doing so. It would not be surprising that traders would take note and seek to benefit from such a pattern.
We are not aware of any academic studies that have examined and opined on the validity of these indicators. In the absence of such studies we believe it may be preferable for small investor to avoid trading near the beginning and end of the trading day, in order to avoid the potential greater volatility during these periods, and to obtain, if not a better price, then at least a price more representative of the market at that time.
On the other hand, we are much more skeptical about the value of the smart money indicator as a means of predicting future price movements. Many asset managers have thought they had discovered a technique to beat the market, but none have managed to do so regularly and in the long term. We have no reason to believe that the study of market trading data would have any more success.
equity
