SECRET #7: Pre-Market Trading: The Art of Smart-Money

There are many different approaches to making money in the markets. Many know the usual approaches of movement, trend, volume, etc. trading. Trading when the market is opened is trading on a different level.

However, there are different approaches and the trading of the pre-market phase and the trading of gaps in the short term time frames at the market open is one of the king classes of elite traders and must be practiced for a long time until they are brought to perfection.

In spite of the ever-increasing opportunities to buy and sell shares in the pre-open market, this can become very critical if the market environment is unpredictable, as share price differences (up- and down-gaps) at opening can represent an unpredictable market event for traders. Placing your order before opening not only contributes to a possible widening of these gaps, but also increases the chances that you could enter at or near the worst price at opening.

However, if you wait for the first ticks in the open due to market movements in the pre-market session, you have an advantage because you at least know where the market opened.

The market openings in the equities sector in the first 30 minutes are usually very highly volatile phases in contrast to the rest of the day. The elite trader knows that it is usually best to place positions in the market a short time after the opening of the stock market. If the market has already opened, an elite trader often sees after 1-2 minutes exactly where a stock has started into the trading day and where it is moving in the short term, which in many cases allows more intelligent decisions.

Very often it happens that a day range is formed in the first 30 minutes. I.e. the movements in this phase are often very distinct. The advantage of this phase is that you sometimes could complete your daily business within a few minutes, because you can reach your desired price levels very quickly due to the high speed market – as long as you know what you are doing. On the other hand, due to its volatility, this phase is also very risky and difficult to trade.

Conclusion:

By simply waiting a few moments to see where the stock opens and on which side the volume goes when the market opens, a trader can measurably improve the accuracy of his entries. It should also be remembered that there are strategies in institutional stock trading that when values move a certain amount/percentage within the first opening minutes, these stocks are targeted and traded with big money on the basis of 30-minute gap strategies. Gaps very often quickly change the price in relation to their opening and this change or the price direction the market will go in the next few minutes can usually be seen when waiting briefly to place your first orders.

It wasn’t long ago that the pre-market was a privilege that only the big players shared among themselves. But despite the fact that trading systems are offered that specialize in pre-market trading just before the opening, we advise you to largely stay away from the pre-open phase. While there are times when buying before the opening bell can be lucrative, the market image at this stage is mostly wrong.

In these “outer” times a lot of games are played. Due to the scarce volume, the price agreements of the BigMoney, the various forms of price fixing, the pre-market phase is often a death trap for the novice.

The case of DNDN in 2009 – I still remember this value very well. I was there myself, but due to my stop strategy, I got out of the trade in time.

The market ran after the Open from 22$ to 25$. I had an entry signal at 23$ and was stopped at 24,60. Right after that the market collapsed and ran back from 25$ to 7$ within 90 seconds (!!!) and there was a trading halt just under 12$. If you did everything right and made up your stops properly, you still came out of the trade with an increased slippage.

You could assume that the market will open or go even lower the next day due to this crash and try to position yourself in the pre-market phase. But to demonstrate the unpredictability and the power of those who are involved in the pre-market phase, here is a short description of how this case was ‘regulated’ shortly before the opening of the market:

Until shortly before MarketOpen, the pre-market quote was between 13$ and 14$. But then, very shortly before market opening, big money came into the play and drove DNDN out of this price range within a few minutes and up to almost 28$, i.e. far above the high of the previous day.

Although this is an exceptional case, it is intended to illustrate what it means to challenge with big money, because in the pre-market phase you will look in vain for the possibility of stops. You can only act with limit orders. I.e. a jump from $12 to $28 – could mean the death of your account if you don’t fortunately act in the right direction.

At this point one might think why someone would be interested in an individual case from 2009? … Well – what happens once can happen again and again. You are not only on the market today and tomorrow – you have set yourself the goal of being on the market still in 10 years. Now you can calculate that the probability will increase from day to day, that something like this could happen to you during this time and that your account will go up in smoke if this happens to you.

By and large, the best measure is to wait for what happens in RealTradingHours (RTH), and that will only be revealed once the game has really started after the opening bell. Remember, there are no gifts on Wall Street. If you get something you don’t deserve, you won’t want it and it will shake you off or might even financially destroy you.

Disclaimer:

HYPOTHETICAL OR SIMULATED PERFORMANCE RESULTS HAVE CERTAIN LIMITATIONS. UNLIKE AN ACTUAL PERFORMANCE RECORD, SIMULATED RESULTS DO NOT REPRESENT ACTUAL TRADING. ALSO, SINCE THE TRADES HAVE NOT BEEN EXECUTED, THE RESULTS MAY HAVE UNDER-OR-OVER COMPENSATED FOR THE IMPACT, IF ANY, OF CERTAIN MARKET FACTORS, SUCH AS LACK OF LIQUIDITY. SIMULATED TRADING PROGRAMS IN GENERAL ARE ALSO SUBJECT TO THE FACT THAT THEY ARE DESIGNED WITH THE BENEFIT OF HINDSIGHT. NO REPRESENTATION IS BEING MADE THAT ANY ACCOUNT WILL OR IS LIKELY TO ACHIEVE PROFIT OR LOSSES SIMILAR TO THOSE SHOWN.

No representation is being made that any account will or is likely to achieve profits or losses similar to those shown. In fact, there are frequently sharp differences between hypothetical performance results and the actual results subsequently achieved by any particular trading program. Hypothetical trading does not involve financial risk, and no hypothetical trading record can completely account for the impact of financial risk in actual trading. All information on this website is for educational purposes only and is not intended to provide financial advice. Any statements about profits or income, expressed or implied, does not represent a guarantee. Your actual trading may result in losses as no trading system is guaranteed. You accept full responsibilities for your actions, trades, profit or loss, and agree to hold this information harmless in any and all ways.

Risikohinweis:

Börsengeschäfte sind mit erheblichen Risiken verbunden. Wer an den Finanz- und Rohstoffmärkten handelt, muss sich vorher selbstständig mit den Risiken vertraut machen. Eventuell dargestellte Analysen, Techniken und Methoden stellen keine Aufforderung zum Handel an den Finanz- und Rohstoffmärkten dar. Diese dienen ausschließlich der Veranschaulichung und Weiterbildung und Informationszweck und stellen keine Anlageberatung oder sonstige individuelle Empfehlung dar. Sie sollen lediglich eine selbstständige Anlageentscheidung des Kunden erleichtern und ersetzen nicht eine anleger- und anlagegerechte Beratung. Der Kunde handelt gleichwohl auf eigenes Risiko und auf eigene Gefahr. Beachten Sie bitte die aktuelle Fassung der AGB.

By |2019-08-22T20:38:28+00:00August 21st, 2019|Expert Tips|0 Comments

About the Author:

After working in the Banking-Sector, Gilbert pursued further education and graduated from a technical school for computer science and business informatics. Following this, Gilbert worked for around 25 years as a software engineer, requirements manager, project manager and external project consultant for various international software and financial service groups such as: BAWAG/PSK Austria, Ceska Sporitelna, Unisys International, Allianz Austria/Suisse and Allianz SE. In 1999 he started to focus on EOD swing trading, and after receiving a professional trading education in Germany and New York, he gradually switched to intraday trading. In 2007/2008 he traded for a US-based prop trading firm for approximately 1.5 years. As the founder and CEO of AgenaTrader.com, Gilbert is responsible for the architecture and design of AgenaTrader Basic and the development of the components that support trading with AgenaTrader++, as well as for the worldwide launch of the trading platform and its upcoming services.

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