One of the most important things to master as a trader is what you do during pre market trading hours.
How you start your day sets up your day. It either sets it up for success, or for failure.
Did you hear about the Olympic gold medalist who was binge drinking right before the race? If so, please send me the link to the story.
The reason this kind of story is absent from our reality is that it doesn’t happen. Our behavior outside of our primary goals always affects our performance. Sometimes it only affects us in small ways but more often it does so in a big way.
It’s the same for trading. What you do pre market trading affects your trading results. So here are seven essential pre market trading techniques to help you get the best results and set yourself up for success.
Pre Market Trading – Technique #1: Earnings releases
Earnings releases. They conjure up an image of nervous traders glued to their screens waiting to see what unfolds.
Some traders avoid earnings release times. Others wait for them. Both methods can be profitable.
One thing is a guarantee. Any trader who ignores earnings releases completely will experience pain.
Prices are 100% influenced by the reactions and trades of people. The imbalances between supply and demand dictate the movement of an instrument’s price.
The planned reactions – or gut reactions – of traders can move stock prices very fast. Opinions and analysis aside, this can be big trouble if you don’t know it’s coming.
You don’t have to have an earnings-based trading strategy, but you do need to know when they are happening. That way, you can stay out of the market until things have unfolded.
Make sure you use a paid news feed or a simple free online calendar to track earnings.
The best time to find out about earnings releases is in the pre market. This is before the regular trading hours of the market you are trading. It is also a powerful habit to check the next day’s schedule as well if you plan on holding overnight.
Pre Market Trading – Technique #2: Economic indicators
Economic indicators can have a significant influence on trading results.
Stock, commodity futures and Forex traders alike often use them. The impact they have varies depending on the individual trading strategy used.
“Don’t wait for the market open to get up to speed on economic indicators.”
Consider a stock trader who trades a macroeconomic strategy. For them, the timing of the economic data release and the figures themselves are important.
Contrast that with a futures trader who takes advantage of resultant high volatility. They may find only the release time is significant.
A large percentage of economic data gets released outside regular trading hours. It serves a trader well to get prepared before the market opens. This is an essential pre market trading technique.
Pre Market Trading – Technique #3: Headline news
Headline news has an clear impact on all financial products.
As Technique #1 and #2 state, the reactions of traders to inputs dictate short term price. These inputs can be in many forms. They can come as headline news, earnings releases or economic indicator figures.
Sensationalist media is always competing for our attention. Traders who keep things simple have an advantage.
How do you block out all the noise yet still benefit from the information?
An elegant solution is to watch the news from a very high perspective. Ignore the details. If you see something that affects your current positions, take note. But track your own position instead of the news release.
Another technique is to scan the news in the pre market hours and then shut down the news feed. A good trading strategy should never have a trader monitoring headline news. Check the news pre market trading, but while you’re trading only be trading.
Pre Market Trading – Technique #4: Emini futures cues
The e-mini (ES S&P500) is popular among futures traders. But did you know that keeping tabs on it can benefit stock traders too?
Regular trading hours for stocks in North America are from 9:30 a.m. to 4:00 p.m. Futures are a 24-hour trading market.
This means that stock traders can check the e-mini pre market trading. What they get is a head start look at what their own trading day may hold and where the market may open.
“The emini futures can serve as an overall market guide.”
Pay attention to the futures market direction right before the stock market open.
For example, a trader of S&P 500 stocks or the SPY ETF can check the eminis pre market trading. They may want to only trade in the long direction in early morning trading if the emini is showing strength.
Don’t forget this key pre market trading technique. Check the futures before you trade in stocks. You can get a head start on your day of trading and better gauge where the market might trend.
Pre Market Trading – Technique #5: Mind the spread
Pre market trading preparations can include actually trading during pre-market hours.
This can be as lucrative as any other style of trading. But there is one thing to beware of.
That one thing is the spread.
Whether you trade stocks or futures in the pre-market, watch out for wide spreads. There is a stark comparison to trading volumes during regular trading hours.
The reality is that that volume in the pre-market is much lower in comparison to regular market hours.
It is vital to take note of this increased cost of trading when dealing in pre market trading hours.
Pre Market Trading – Technique #6: Your consistency
Consistency is a mainstay of great trading performance.
Consistency is also important in your pre market trading preparations. What a trader does before trading can have a large impact on their trading results.
“The consistency you build in your life is key to your consistent success in the markets.”
Consider a trader who wakes up minutes before the market opens. They stumble to a small telephone screen to check quotes and see what is happening in the market.
Compare that image to a trader who has woken up from a night of solid sleep. First, he exercised. Then he had a nutritious breakfast.
That same trader arrives at his trading desk with plenty of time. He’s relaxed as he checks for upcoming releases and news that might affect his trading day.
It’s clear which one of these traders has the advantage. Make sure that you manage the hours that lead up to your trading well. Allow that consistency to be a positive force in your trading.
Pre Market Trading – Technique #7: Rest and relaxation
Sleep and rejuvenation is a rule for any trader who wants to succeed in the long term.
The rest that a trader gets can often define trading performance. Besides the physicality, many aspects of trading mirror sports performance. Moreover, high performers in both arenas need proper rest.
Celebrating success and the occasional post celebratory hangover is fine. But make sure that you have a proper regiment of rest planned. This consistent time to rest and renew will help you trade at your best on a regular basis.
For more day trading techniques, tools & strategies, check out these articles:
- 5 Lies That Can Kill Your Online Trading Success
- 11 Reasons You Need To Keep A Trading Journal
- 5 Essential Tips For Success In Online Day Trading
Use these seven pre market trading techniques to get the most out of yourself and your trading. You have a much better chance of ending well when you start well.
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