The advantage of timing your trade (not the market)
Author: John Christofilos
April 10, 2018
Market timing is a mug’s game that rarely pays off, but timing your next stock purchase to coincide with the most active periods of the trading day can be a worthwhile strategy.
This is particularly true of the first hour following the market open, as well as the last hour before it closes, when the percentage of total daily volume often spikes, resulting in better liquidity than at other times in the day.
These spikes in trading activity are not unusual and can be anticipated by algorithms that track historical volume data over a time period of 20 or 30 days. If, for example, a certain stock has traded heavily near the close in recent weeks, we would expect that pattern to continue and may adjust our trading in the stock to participate more heavily at that time.
By identifying times in the day when liquidity is greatest, we gain more assurance that our trade will have limited market impact and not materially affect bid/ask spreads. In other words, we’re part of the volume, not the volume, which can sometimes lead to large unintended movements in share prices.
So when is it not an optimal time to trade? We’ll typically reduce our participation during the two hour window between 11am and 1pm, which tends to be a quieter period because that’s when most people get up from their desks and grab lunch. So if we typically trade at 10 to 15% of the average daily volume, we might bring that down to 5% over those two hours and wait to pick it back up when better flow returns later in the afternoon.
John Christofilos is a senior vice president and chief trading officer at AGF Investment Inc. He is a regular contributor to AGF Perspectives.
Commentaries contained herein are provided as a general source of information based on information available as of April 4, 2018 and should not be considered as personal investment advice or an offer or solicitation to buy and/or sell securities. Every effort has been made to ensure accuracy in these commentaries at the time of publication; however, accuracy cannot be guaranteed. Market conditions may change and the manager accepts no responsibility for individual investment decisions arising from the use of or reliance on the information contained herein. Investors are expected to obtain professional investment advice.
AGF Investments is a group of wholly owned subsidiaries of AGF Management Limited, a Canadian reporting issuer. The subsidiaries included in AGF Investments are AGF Investments Inc. (AGFI), Highstreet Asset Management Inc. (Highstreet), AGF Investments America Inc. (AGFA), AGF Asset Management (Asia) Limited (AGF AM Asia) and AGF International Advisors Company Limited (AGFIA). AGFA is a registered advisor in the U.S. AGFI and Highstreet are registered as portfolio managers across Canadian securities commissions. AGFIA is regulated by the Central Bank of Ireland and registered with the Australian Securities & Investments Commission. AGF AM Asia is registered as a portfolio manager in Singapore. The subsidiaries that form AGF Investments manage a variety of mandates comprised of equity, fixed income and balanced assets.
About AGF Management Limited
Founded in 1957, AGF Management Limited (AGF) is an independent and globally diverse asset management firm. AGF brings a disciplined approach to delivering excellence in investment management through its fundamental, quantitative, alternative and high-net-worth businesses focused on providing an exceptional client experience. AGF’s suite of investment solutions extends globally to a wide range of clients, from financial advisors and individual investors to institutional investors including pension plans, corporate plans, sovereign wealth funds and endowments and foundations.
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Written by
John Christofilos
Senior Vice-President, Chief Trading Officer and Investment Management, Operations Strategy
AGF Investments Inc.
