It was an interesting morning in chat today. It seemed like every good looking stock on my scanners ended up turning around after the initial move up.
I call that a false start and this is why I usually don’t enter trades in the first 15 minutes of the day. Not that I never do, I just really have to like the setup in order to pull the trigger that early.
I use the mornings in a little different way than many traders out there…
With built up demand over the night, I’m usually selling my overnight trades on the morning gap ups and simply waiting for things to settle out a bit before jumping into new trades.
To show you what I mean, I’ve put together some of the stocks that may have tricked some unlucky traders this morning…
The stock gapped up to 5.02 this morning from a close of 4 yesterday. And right out of the gate it hit a high of 5.28.
It was looking good to any trader caught up in the excitement.
It was a false start as the MINM traded off hitting a low of 4.12 within the first hour of trading.
Take a look at this chart…I circled a top wick on today’s candle. This shows the area that potential tricked traders in with excitement of the move up.
But as you can see the stock ultimately reversed and traded lower in what ended up being an ugly candle for traders.
Yunhong CTI Ltd. (CTIB)
CTIB started the excitement early, up close to 4 in premarket.
When the market opened the stock was trading at 2.99 on a gap from yesterday’s close at 2.61. With continued interest after the open, it made a run to a high of 3.20 on the day.
Does the chart look familiar?
After making an initial move, CTIB traded off in similar fashion to MINM, making for a big top wick on the daily candle today.
Oxbridge Re Holdings (OXBR)
I saw more of the same in OXBR. Trading at 5.45 in premarket on news of Custodian Ventures taking out a 9.9% stake in the company, the stock opened at 4.36 on a gap up from 3.35.
But again, OXBR failed to hold the move and cratered after the morning run.
Taking a Step Back
Listen, by no means is there only one way to stay out of a mess like this, nor will any strategy work every time. Not to mention…there is no one size fits all strategy.
I personally know a lot of traders who focus on trading the first 15 minutes of the trading day…every day.
It’s their bread and butter.
I’m not one of them.
So for me there’s a simple solution. Don’t trade the first 15 minutes of the trading day.
What? Don’t trade? I must be joking right?
I can assure you this is no joke. And again, I’m not telling you not to trade the first 15 minutes.
I am simply explaining one way in which I dodge some of these “false start” moves in the morning.
Something these tend to have in common…the first 15 minutes of trading after the open is crazy, to say the least.
With the markets closed overnight, buy and sell orders build up creating what’s called an imbalance at the opening bell.
This imbalance can create some messy moves and cause other traders to try and catch quick moves in and out of a stock.
Point being…the first 15 minutes of the day is not always the best indication of how a stock is going to trade the rest of the day.
For this reason, I prefer to let things settle down a little before getting into any new trade setups.
That doesn’t mean I never trade at this time.
In fact one of my favorite times to sell is during the first 15 minutes of the day. In this case I am taking advantage of those same imbalances. But instead of buying, I am using them to get out of my overnight holds on any built up demand.
Here’s what I am talking about…
I marked the first 15 minutes of trading in a blue rectangle on the chart for each of the stocks I talked about today. These are 5 minute intraday charts, therefore I’ve marked the first 3 candles on each chart.
It’s pretty easy to see when you look at it this way.
After the first 15 minutes of trading, neither MINM nor CTIB make a move anywhere near the high of that range.
To some extent they would have potentially been pretty clear shorts at this point, but either way there is no reason I see to be buying on these charts.
In which case, if I practiced patience, I could sidestep an ugly selloff in a stock that could have looked like a good buy just 10 minutes before. Of course nothing is guaranteed and it can work both ways.
Now CTIB makes it a little trickier…and shows that nothing is perfect which is why I am glad I have this chart to share as well.
As you can see, CTIB didn’t immediately move down after the first 15 minutes like the other two stocks above.
In fact, the first candle after is an up candle…yet it’s still below the range.
The hard part with CTIB is that it does trade up to the top of the range and even gets a couple cents above it…would this have been a buy signal?
For some it may have…and that clearly would have sucked.
But that brings up another lesson…
When trading, I try to use as much available information as possible.
In the case of CTIB, as with any of my trades, I would have looked for overhead resistance. You see, I don’t like to buy right below resistance. I want to see stock get above it first.
And looking at premarket trading in CTIB, you can see the stock hit 3.25 before going down into the open.
If I am looking at this chart, I would likely want to see the stock clear 3.25 before making a move on it. The fact that CTIB makes a double top just below 3.25 actually lends to the short side thesis on this chart.
Granted it’s not as easy to see all of this when trading live “in the moment.” But the more practice I get the better I am at noticing the little things that can help keep me out of trouble.
It’s just one way I approach the markets, especially in the morning…there is a lot of information right in front of me…it’s in the candles, premarket range, volume, etc.
The first 15 minutes can be a dangerous time for many, but for others it’s their bread and butter….it’s up to me to make that decision for myself, same as you.