Unlocking the Lunch Effect in Markets:
A Trader’s Edge
Why Markets Drift Upwards During Lunch
So, have you ever noticed how the market gets a little lazy around lunchtime?
There’s actually a reason for that, it’s called the “Lunch Effect”.
And I found a white paper researching that whole phenomenon.
Luckily for you, I’ve dissected it into action points so you don’t have to…
UPWARD DRIFT
Between 12 PM and 2 PM, U.S. stock markets tend to drift upward.
Why?
Well, most human traders are away from their screens, probably grabbing lunch and maybe a swift half… so with fewer active decisions being made, the algos take over, and the market tends to smooth out, often creeping higher.
But here’s the interesting bit: before lunch, there’s usually a slight pullback.
Between 11 AM and 12 PM, the market tends to dip before starting its upward move.
Knowing all this could give you an extra edge.
THE DATA EDGE
A study from Quantpedia dug into the numbers, analyzing SPY data from 2010 to 2024, and what they found is pretty interesting.
While the market’s Overnight Effect has faded a bit, the Lunch Effect is still going strong.
That subtle dip between 11 AM and 12 PM is followed by a small rise until around 2 PM.
For day traders, these small edges can really add up.
How to potentially trade it.
So, could you take advantage of this?
- Short from 11 AM to 12 PM: Look for the pullback during this window.
- Go long from 12 PM to 2 PM: Once the dip ends, potentially get long and ride that midday drift upwards.
It’s simple but effective.
Just remember though, this is supposedly a theme over 14 years…
So, put it into perspective. This isn’t going to be a dead cert every day.
It’s just a theme that’s maybe worth keeping in mind…
Every edge counts, right?!
Anyway, here’s a link to the actual paper if you want to take a dive.