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PreMarket Trading 101: How to Prepare & What You Should Know

RagingBullRagingBull ·

A real boss will make their money before the market opens, in the pre-market. Find out some strategies and tips about pre-market trading, right here.

Most people who trade stocks can tell you that the New York Stock Exchange is open between 9:30 AM (opening bell) to 4 PM ET (closing bell).

However, you can trade electronically well before the open and well after the close. That said, you can trade NYSE and Nasdaq stocks electronically between 4 AM and 9:30 AM ET, its know as pre-market trading hours.

nyse pre-market trading

What sets these millionaire traders apart from those struggling to make it, is the right mindset. Click on the image to find out more.


Pre-market Trading Preparation

Day trading stocks require a great deal of focus. That said, to be at your best, you should be well rested, alert, and calm. Now, there are many reasons why being up early has its advantages.

Typically, companies release stories before and after the market closes. It allows traders to digest the information before the market opens. That’s why earnings are released before or after the market closes.

That said, company press releases are not the only information that gets distributed in the morning. For example, many Wall Street research firms will issue recommendations, upgrades/downgrades, before the market opens.

By getting an early start to the day, you’ll have a chance to check up on the news and catalysts. And if you’re Jason Bond, you’ll want to be up early to take profits from your overnight positions.

jbp premarket






You’ll also want to see how Europe and Asia are trading since they sometimes dictate how the US futures will trade. That said, there is a lot of reading that you can do in the pre-market to help you get ready for the day.

Finding Pre-Market Catalysts

One thing you’ll discover in the pre-market is, most stocks don’t trade. Also, many times the bid/ask spread can be so wide that it doesn’t make sense trade the stock.

With so much news, catalysts, analyst actions, how do you know what is essential and what should you ignore?

Unless you’re experienced or have a good mentor, then you won’t know. However, there is a way to learn this quickly: focus on volume and price action. You see, since most stocks don’t trade much in the pre-market, any stock that is trading any decent amount of volume is because it has a catalyst. Make it your job to know the story behind what’s moving the stock.

For example, on July 29, 2019, GameStop issued a press release stating that the company no longer has plans to pursue a sale, an hour and a half before the New York Stock Exchange opens.

gme pre-market news

That said, the stock was trading down 20% after it announced that news, on heavy volume. You can always, look at the largest movers, gainers, and losers to put together a list of in-play stocks. But make sure to find out the catalyst before trading. Often, stocks will overshoot in the pre-market, this gives the informed trader an edge over those simply trading price action.

Putting A Pre-Market Trading Plan Together

If you’re not trading with a plan, you’re doing a disservice to yourself. You see, every great trader has a trading plan. Now, a trading plan can consist of a watch list and an overall trading strategy.

Here’s an example of a watch list that Jason Bond put together and sent out to subscribers of his eletter, Jason Bond Picks.

pre-market trading watchlist

The top-traders are typically calm and relaxed under pressure. One way to get there is by being prepared, it’s essential to know key price levels and have targets before you place trades. If you decide to enter a trade, make sure you have two targets, one for taking profits and the second being your stop loss, in case you’re wrong the trade. Often, traders who are starting will put their attention on “how much they can make” and forget about what to do if their wrong.

Your ego can interfere sometimes. Instead of taking a small loss and admitting you’re wrong, you wait for the stock to turn around, but it doesn’t, it gets worse, and the loss becomes significant.

If you have a trading plan written out, you’re most likely to stick to it.

Here’s What Else You Should Know About Pre-Market Trading

Market orders don’t work. That means you’ll need to change your order type. If you use the thinkorswim platform, the type is EXT, which stands for extended hours. That said, there are a lot of orders that get executed through dark pools in the pre-market. You’ll also see more hidden orders in the pre-market. However, if you stick to stocks that are catalyst driven, you should be fine. Don’t trade stocks that don’t have much volume, getting out could prove to be a difficult task.

In Summary

Pre-market trading can be very profitable. If an M&A deal is announced at 5 AM, and you are at your computer and are informed enough to act on it, it will be like money dropping from the sky. That said, most traders should focus on volume and price action. For example, if a stock on average trades 10M shares, and 200K shares trade in the pre-market, that is a relatively small number, even if that stock is one of the most traded pre-market stocks that day.

The pre-market offers a lot of trading opportunities. Try to study which catalysts drive stocks and then try to take advantage of those winning patterns when you spot them again. You’ll be surprised at how much opportunity there is between 4 AM and 9:30 AM ET.

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