The Fool’s Hour on the Exchange: What It Is and Why It's Dangerous
Introduction
The "Fool's Hour" refers to the first hour after the market opens, during which spreads widen, volatility sharply increases, and liquidity declines. This period is characterized by chaotic fluctuations due to the accumulation of overnight orders, institutional trades, and reactions to pre-market news. For traders, this timeframe introduces heightened risks: false signals, slippage, and emotional decisions can result in significant losses. Understanding the nature of the "Fool's Hour" and implementing protective measures can help mitigate risk and establish a more reliable trading strategy.
The origins of the term can be traced back to the early brokerage exchanges where inexperienced market participants made impulsive trades in the first minutes of trading, resulting in capital losses. Today, with the presence of complex algorithmic strategies, the "Fool's Hour" has taken on new features, yet its essence remains unchanged: high uncertainty and traps for those who neglect risk management principles.
Modern trading platforms highlight the "Fool's Hour" more vividly through cluster volume analysis and heat maps of spreads, enabling traders to discern high-risk areas in advance.
1. Definition of the "Fool's Hour"
1.1 What It Means
The "Fool's Hour" (Dumb Hour) is the first hour of trading when the market is still unstable. On the Moscow Exchange, it runs from 10:00 to 11:00 AM MSK; in the United States, it spans from 9:30 to 10:30 AM EST. This period witnesses the most uncertain trades of the day.
1.2 Characteristics of the Period
- Widened spreads between BID and ASK;
- Unstable volumes: peak abnormal orders coexisting with narrow trades;
- Order cancellations and adjustments: up to 15% of open orders are annulled;
- Instantaneous price "jumps" without a clear trend;
- Algorithmic flash crashes and micro-retracements.
2. Market Parameters During the "Fool's Hour"
2.1 Volatility
In the first hour of trading, the volatility of Moscow Exchange stocks is, on average, 35% higher than the daily figure. At the NYSE, the first 30 minutes account for 50% of the daily volatility within the first 15 minutes.
2.2 Liquidity and Volumes
Liquidity decreases by 20–30% in the initial minutes, and the total trading volume can reach up to 40% of the daily volume. This creates situations where large orders "suck" available liquidity, leading to "liquidity gaps."
2.3 Spreads and Slippage
The average spread for the top 10 stocks on MOEX increases to 0.8% during the "Fool's Hour," compared to 0.2% at other times, resulting in slippage of up to 0.5% on large volumes.
3. Causes and Triggers of Chaos at the Open
3.1 Pre-Market and News
Key macroeconomic data (GDP, inflation, unemployment), corporate reports, and regulator statements are published overnight and in the morning. This news shapes expectations, and accumulated pre-market orders are executed in the initial minutes of trading.
3.2 Institutional Orders
Large funds and algorithmic strategies place accumulated limit or market orders, which can cause sudden price jumps, especially in markets with shallow depth.
3.3 Correction of Pre-Trading Anomalies
The gap between closing prices and pre-market can reach 1–2%, and the first session serves as a moment for "settling" this discrepancy, as both retail and institutional investors adjust their positions.
4. Trading Risks
4.1 False Signals
During the first hour, noise levels exceed the strength of trend signals. Reversals, breakouts, and classical patterns frequently turn out to be false as the market has not yet stabilized and established a consistent trend.
4.2 Slippage
Due to the shallow market depth and widened spreads, slippage can amount to up to 0.5% on a single trade, which equates to a loss of 5,000 ₽ on trades of 1 million ₽.
4.3 Emotional Errors
The priority of fear and greed over logic leads to thoughtless entries and holding of losing positions. FOMO drives traders to act too early, while the fear of missing out causes premature trade closures.
5. Protective Strategies
5.1 Avoid Trading During the "Fool's Hour"
A simple tactic is to entirely refrain from trading until 11:00 AM MSK. This allows traders to wait for market stabilization and then analyze the first candles for more measured entries.
5.2 Volume and Spread Filters
Setting a minimum entry volume (e.g., 10,000 shares) and a maximum spread (no more than 0.5%) allows automatic blocking of orders in unprofitable conditions.
5.3 Limit Orders
Placing limit orders at key support/resistance levels after the market opens reduces exposure to noisy movements and improves execution quality.
5.4 Indicator Filtering
Using a double crossover of moving averages (EMA50 and EMA200) after the first candle closes helps confirm the direction of movement and filter out false entries.
6. Psychology and Emotional Aspects
6.1 Emotional Traps
The fear of missing the movement combined with greed and the urge to recover losses leads to emotional trading. A strict trading plan helps avoid impulsive actions.
6.2 Discipline and Trading Plan
Clear rules: no more than 3 trades during the "Fool's Hour," a fixed risk of up to 1% of the deposit per trade, and mandatory confirmation of entries by indicators.
6.3 Trading Journal
Recording the parameters of each trade (time, volume, price, reason for entry/exit) and subsequent analysis can help identify systemic errors and adjust the strategy.
7. Examples and Case Studies
7.1 Sberbank
On March 12, 2025, at 10:00 AM MSK, Sberbank formed a bearish engulfing candlestick at the 270 ₽ level on the daily chart, with a volume of 1.2 million shares. Scalping without filters resulted in 0.4% slippage, reducing profits by 0.3%.
7.2 Quantum Fund
The robo-advisor disabled algorithmic strategies during the "Fool's Hour": this increased the portfolio's annual return by 2.5% in 2024 and reduced the maximum drawdown by 12%.
7.3 Liquidity Overview
Research showed that the average spread for "Gazprom Neft" shares during the "Fool's Hour" reaches 1.2%, whereas after 11:00 AM it stabilizes at around 0.15%, highlighting the importance of filtering during this period.
8. International Experience and Analytics
8.1 The "Fool's Hour" on NYSE and NASDAQ
In the US, the first 30 minutes of trading (9:30–10:00 AM EST) are considered the riskiest, accounting for up to 50% of daily volatility. Widened spreads and a high percentage of canceled orders are characteristic of technology stocks and small companies.
8.2 Differences Between Markets
In Europe, the hour after opening (9:00–10:00 AM CET) shows less volatility, as many news releases are published before opening, and the trading culture is more conservative. Liquidity returns more quickly due to active participation from market makers.
8.3 Cluster Volume Analysis
Cluster charts display "hot" levels of orders in the first minutes. Heat maps of spreads help visualize areas of pain points where slippage is most pronounced.
9. Extended Recommendations
9.1 Multi-Asset Diversification
Trading across stocks, bonds, and currency pairs simultaneously lowers overall portfolio volatility. If one market experiences a "Fool's Hour," another might remain more stable.
9.2 Fundamental Filtering
Conducting preliminary analyses of corporate and macroeconomic events allows traders to exclude the riskiest assets in advance and focus on instruments with a neutral or positive backdrop.
9.3 Regular Strategy Testing
Monthly back-testing of filtering and limit order strategies using historical data allows adaptation to changing conditions and helps maintain high effectiveness.
10. Conclusion
The "Fool's Hour" is a critically important period with high risks: false signals, slippage, and emotional errors. Avoiding trading in the first 60 minutes, implementing strict volume and spread filters, using limit orders, and confirming entries with indicators can help minimize losses. Discipline, a clear trading plan, and maintaining a trading journal provide a solid foundation for stable capital growth and mitigate "foolish" mistakes.
It is advisable to combine technical filters with fundamental analysis, diversify assets by classes, and regularly test strategies in order to confidently navigate the "Fool's Hour" and maintain trading effectiveness over the long term.
