What is the 10 AM rule in Stock Trading?

Has it ever occurred to you why the stock market opens at 10 AM? Or why in stock trading there are specific rules governing time?

The 10 AM rule has quite a big fan following among investors and traders. It simply refrains people from buying/selling stocks at 10 AM. Do you know the reason why? Let’s explore this rule in detail and figure out why it says so.

Concept of the 10 AM Stock Trading Rule

The stock market is nothing less than a rollercoaster ride that sometimes soars very high and plummets the remaining. A small investor might find this painful to keep tabs on this fast-paced trading world. Many rules and guidelines are being issued from time to time to help traders make the right choice.

Nothing is a sure shot because risk never ends, but these will help in minimizing heavy losses. One such rule is the “10 AM Rule”. Let us begin by understanding the meaning of this rule. Here is an example to help you.

Imagine that your watch is at 9:59 a.m. You are all ready to enter the market and trade. Everything from your side is updated and at your fingertips. Now, the watch turns to 10 AM. The market opens and suddenly there is a rush. Stock prices increase, continuous buying/selling orders and chaos starts.

What would you do in such a scenario? Are you sure the decision you make will be right? If you sell at that very particular moment, the chances of losses are very high. So, how can the 10 AM rule help you to make the right decision?

In such cases, the 10 AM rule suggests that even expert traders and investors must avoid the rush hour and wait until the morning passes. What exactly is the morning time? It is between 9:30 AM to 10:30 AM. Some people wait until 11 a.m. to trade.

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Important Aspects in 10 AM Stock Trading 

There are some really important aspects of the 10 AM rule. Before believing right away, it is important to understand the reasons why the rule is protective and not just a fluke. Here are points that suggest that:

  1. It is a widely used principle even by the best investors. Often the first hour of market opening decides the order and tone for the whole day. At this time volatility is high and investors are most vulnerable to making the wrong choice.
  2. As soon as the watch shows 10 AM, every trader gets active and starts to prepare strategies and predictions. With hundreds and lakhs of investors doing it, the reverberations create a huge impact and drive the prices.
  3. Analyzing every rule from start to end is crucial to making impactful strategies. So, when the market opens, sit back and relax. Maybe drink a cup of coffee and allow the madness to settle. Only then take some action.

The 10 AM Rule is not carved on a stone to follow blindly. You can always make some loopholes and changes while implementing it. Predictions are made considering the first hour too. So, never underestimate what is happening in the morning when the market opens.

Advantages of the 10 AM Stock Trading

Here are some of the advantages of following the 10 AM rule in stock trading:

1. Minimizes Losses

One of the biggest benefits of applying the 10 AM rule in your trading habits is that it will minimize your losses and protect you from making any kind of expensive errors. The approach of this rule is simple, right? Do not trade before 10 a.m.

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The stock market is hyperactive during this time. Prices boom and plummet at a fast pace. There is absolutely no stop to the erratic situation. But once the first hour is over, the market starts to settle and becomes more steady.  

2. Volatility Risk is reduced

For investors, the volatility of stocks has been a huge issue. And guess what? During the first hour, it is at its peak. The main reason? It is because trade happens at a very fast pace. It usually settles within the first hour.

If you want to invest for the long haul, it is better to allow the market to calm down. You definitely don’t want the short-term fluctuations affecting your decision anyhow.

3. Time to make decisions

What most traders lack is thinking before putting money into stocks. But when you just sit in front of your screen and see everything happening, noting every fluctuation with a coffee in your hand, don’t you think, it feels wonderful?

You get all this time just to observe, plan, and then act. You can make strategies, analyze past trends, check the official website, and even cross-check in your circle, if a stock is worth it or not. 

Disadvantages of the 10 AM Stock Trading

While the rule sounds wonderful, it has certain disadvantages like:

1. Not appropriate for everyone

We all know that there is no such thing as “one strategy that fits all”. Even though this one is a very generic guideline that might apply to all, still it is not carved on a stone. The whole base of this rule is that price fluctuations happen rapidly in the starting phase. But what if that is not the case?

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Several other factors govern the stock prices like global events and earning announcements. So, in short, there might be certain stocks that are less susceptible to fluctuation.

2. Risk Tolerance Power Varies

You just read above that no strategy is perfect for everyone. Another exception is the risk tolerance power of the trader. There are some experts and professional-level traders who are open to losses. They know the consequences, yet they are okay with it.

For them, it is either “more risk, more profits” or “a learning experience”. Hence, one cannot question if everyone is not so inclined towards the 10 AM policy.

10 AM Rule in Stock Trading: Final Thoughts 

There is no hard-and-fast rule that you should not buy/sell securities at 10 AM. It is just a simple trading guideline that warns people from doing so. The final decision is obviously yours! 

By now you know that the market is extremely volatile, during the morning hours. To prevent risks it is considered best to not engage in trading. Making profits is the sole reason why people trade. They will do everything possible to reduce losses.

With the 10 AM rule, investors can ensure that stock trading is done in such a manner that price fluctuations in the morning do not take away your profits.

Despite what the rule says, you must consider other strategies and predictions too. Because when it comes to the stock market, there are always risks involved.

What do you think about the 10 a.m. rule? Comment down your views.

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