Pre-market preparation affects your performance during the trading day. This is an urgent task as financial markets are highly competitive and require constant adjustment of strategies to take into account short-term conditions. This is especially true in our modern environment where securities are traded on a 24-hour cycle. Many traders still turn on their screens just before trading opens, hoping to catch up. Extra sleep can be beneficial, but competitors wake up early, collect data and decide how the overnight session will affect trade flow.
Join these conscientious people now by shaking off your sleep and following this detailed pre-sales checklist:
Key Findings
- To stay ahead of the competition, or at least keep up, implement a consistent and effective pre-market trading procedure.
- Checking market index futures, considering economic and geopolitical factors, seasonality, and analyzing corporate news flow are all good preparation strategies.
- Consider the technical factors at play by identifying and recording key levels, setting the first offset, finding a safe exit from positions and placing deep limit orders.
- Look at what other traders are doing and what themes and trends are at play, but avoid the crowd, think irrationally, and decide how passive or aggressive you want to be during the session before it starts.
- Once the trading session has begun, be smart: buy the dips and sell the dips.
Check index futures
Look at the highs and lows of S&P 500, NASDAQ 100 and Russell 2000 index futures during the overnight session as they will generate support and resistance during US market hours.
Overview of macro forces
Read the stories that moved global markets overnight and consider how they will impact the US session. They are typically market driven, with central bank or economic data moving the tape. However, geopolitics and nature create their own market drivers from time to time, so be aware.
Filter the news stream
Follow the news about open positions. Upgrades, downgrades and recommendations may result in large losses or unexpected profits. Browse financial headlines to find other stories that will move the feed and also open up new opportunities for this session.
See what other traders are doing
Sort pre-market securities by volume and find out where your competitors are risking their capital. Then look at the open positions as well as flavors of the day, for example, stocks reporting earnings or commodities reacting to geopolitical events.
Write down key levels
Master the key numbers for major instruments and open positions, if necessary putting the data right in front of your nose where you can see it during a normal session.
Determine Pre-Market Levels
Keep an eye on how index futures or underlying funds are trading premarket, especially after monthly economic data. These levels can lead to breakouts or breakouts in a regular session.
Find safe exits
Exit losing positions premarket, especially if you expect to take a hit after the market opens. Many traders and investors are unable to access real-time quotes until 90 minutes before the US market opens. You will be amazed at how often third party exchanges generate profitable exits before this time.
Set the first bias
Look at the relationship between recent closing prints and expected opening prints. Determine who will benefit and who will be trapped. It's time to fight if you're not on the winning side.
Respect seasonality
Consider the day of the week, time of the month, month of the quarter and period of the year. Each segment will generate specific price action that favors one market group over another.
Find a topic
Most securities will not offer any opportunities during this market day. Your job is to find needles in haystacks while keeping an eye on short-term cash flow.
Think irrationally
The red or green light you see in the premarket is less important than how it changes current expectations. If you can't figure it out on your own, find an expert you trust to explain it to you.
Place deep limit orders
Play this game while sitting alone in the dark watching the pre-market. Place deep limit orders on securities you want to own, but not at current prices. Then be surprised at how often you get full.
Install your collar
Decide how aggressive or defensive you want to be in the morning session based on your pre-market analysis. Reassess at lunchtime or when short-term conditions change significantly.
Avoid the Crowds
Prepare a list of momentum plays and then do nothing while waiting for other traders to be on the wrong side of the tape. Then look for cheap records.
Buy dips/sell rips
Securities make big moves in premarket trading because algorithms push them to extreme prices in an attempt to attract weak capital. Use these spikes and troughs to take a position in the opposite direction or to make random exits from open positions.
Bottom line
Your pre-market routine sets the stage for the rest of your trading day. Use this detailed checklist to get up to speed before your first call.
