Once again, let me remind you how important it is to prepare for the session. Sometimes it happens to miss a good entry on companies, so we look how to join the movement. However, in daytrading the moment of entry is crucial, therefore a good preparation for the session will enable to capture a greater number of strong signals for opening the position. Premarket trading is very important, but even more it to be prepared for session!
You should start with reading this article “Pre market trading” – this way you will understand how pre market differ from regular trading session.
It is possible by analogy to carry this plan out in other markets; however I will focus on US stock exchanges. The trading session in US begins at 3:30 pm of the Polish time. However, pre-market much earlier, reasonable turnover it is possible to notice already from 1:30-2:00 pm.
Preparation for the session in my case begins from 1:00 pm, when I analyze companies from post-market and those publishing financial data (after the session of the previous day, of the given day in pre-market/session/post-market and of the next day). About preparation for the session I also wrote: How I seek so-called “stocks in play”. Thanks to information included in mentioned above article, you will know how to find companies in pre-market.
A little later I start preparation for the session, when publications of results of the quarterly companies ends (usually these are 2-3 weeks of quarter and two first weeks of consecutive quarter). Then usually I start preparation for the session and trading from 2:00 pm.
Let’s look at already traded companies in pre-market. The principle is usually simple – what is noteworthy already in the pre-market; just as interesting to play can be during regular trading session.
A few principles, which it is worthwhile to stick to in my opinion in pre-market, are:
Premarket trading involves definitely greater risk. Therefore, it is necessary to check how the volume changes in pre-market on the given symbol in relation to average turnover carried out in normal sessions.
On many companies in premarket trading a turnover is already carried out. However, the differences makes the fact whether this turnover was 100, 500, 1000 shares, or maybe 100 000 shares or 500 000 or even more. Small turnover doesn’t indicate yet a big deal, the bigger all the larger confirmation of the rightness of movement in pre-market.
Not even great turnover necessarily means that it is worthwhile to trade on the given company. If in pre-market on the symbol we can see that turnover was e.g. 400 000 shares, but e.g. 90% from it was spend in one transaction, the company becomes less interesting.
Possibility to find companies generating turnover in pre-market enables:
Most of brokers have alerts, which inform about companies pursuing increased turnover in pre-market.
Companies, which already in pre-market generate higher volume, in vast majority are so-called stocks in play in the session.
Volatility of companies in premarket trading is really large. It is particularly significant amongst most expensive companies. Very often drawn in pre-market opposition and support are important at the opening of session.
One of the last examples is DDD Company:
in premarket trading it started from 52.50$ and increased up to 58.84$ on the opening of session (you won’t see it on the graph)
this movement provided already with possible large variation, which may appear in regular trading hours
and so it happened
All the higher price of the company, all the potentially bigger movements carried out already in premarket trading. The size of position usually decreases with increase in the price of companies. An aim is primarily to reduce the risk.
It is worthwhile here to mention about possible artificial bids on companies in pre-market – so-called spoofing. It is a manipulation of the rate, which is intended to increase the share price, so that the manipulating person could run from the position. When closing the position, large buy orders are deleted.
If you wanna learn more about how to find hot stocks to trade – and also check out my alerts and stock screeners that I use for good prepartion for trading session – please check out this great article: How to find hot stocks to trade.