The market’s heating back up with the earnings season in full effect…
We had lots of big runners to choose from yesterday.
There’s usually always a few to choose from in premarket…
But once the market opens they can either fail or survive.
On days when everything seems to die, premarket trades can start to look more appealing…
You don’t want to miss out on the action so you can be tempted to jump in early…
But is that the right choice?
Whether you’re new to trading or have some experience, it’s essential to understand both the benefits and the drawbacks of premarket trading.
So, let’s dive right in!
Table of Contents
Pros and Cons of Trading In Premarket
Plenty of SteadyTrade Team members caught some of InMed Pharmaceuticals Inc. (NASDAQ: INM) in premarket yesterday.
And every time we get a big premarket runner, I get a lot of questions about trading in the premarket.
So today I’m breaking down the pros and cons of premarket trading.
Only you can decide if it’s a strategy you want to use. But hopefully, these insights can help you make that decision.
3 Reasons to Trade Premarket
Here are three reasons some traders like to trade in premarket…
Catch Early Moves
One of the main reasons traders love the premarket is the chance to catch early moves in the market.
And one of the patterns to look for in premarket is breakouts.
Look for stocks hitting multi-week, multi-month, or even multi-year highs. These are the ones to focus on because stocks that break out tend to keep breaking out, especially during bullish markets.
Don’t waste your time looking for undiscovered stocks, sideways movers, or long-term down-trending stocks.
Instead, find strong stocks breaking out with high trading volume and aligning with the overall market trend.
No Volatility Halts
During regular trading hours, there’s something called ”volatility halts.” It’s like a pause button for trading when things get too crazy.
But in the premarket, there are no volatility halts.
So, if you’re an experienced trader and like fast-paced action, you can catch big upside moves without having to worry about getting caught in a halt.
Be Done for the Day Early
If you can master premarket trading, you can potentially catch a good trade in the premarket and be done for the day early.
There’s no need to sit in front of your computer all day — especially if the market is slow.
You make your trade, lock in your profits, and enjoy the rest of your day.
While all those reasons sound pretty great, you have to consider the cons of premarket trading before you jump in…
3 Reasons To Avoid Premarket Trading
Now, let’s talk about why you might want to avoid the premarket.
Lower Volume
One of the big downsides to premarket trading is lower volume.
Volume is the number of shares being traded. And in the premarket, there are fewer traders, so there are fewer shares being traded.
If you’re new, you might not take large position sizes so you think it doesn’t matter to you.
But you still have to be careful and make sure you’re trading stocks with enough volume that they can push higher.
Stocks can’t go up without demand.
Not as Many Patterns
In regular trading hours, there are all sorts of patterns and strategies that traders use to help them spot entries and give themselves an edge.
Unfortunately, in the premarket, there aren’t as many of these patterns. There just isn’t enough time in premarket for some patterns to play out.
So while you can look for breakouts above previous highs in premarket, that’s about the only pattern that has time to play out.
That can really limit the number of potential trades you’ll see or be able to take part in.
Premarket Trading Is Aggressive
Trading in the premarket can be an aggressive strategy.
It’s like playing a super challenging level in a video game. It’s not really for new traders who are just starting. It’s more for experienced traders who can handle the intensity or for traders who are on a winning streak and are reading the market well.
If you’re new to trading, stick to regular hours until you gain more experience.
Whether you decide to trade in the premarket or not, always remember that learning and practice are key to becoming a successful trader.
Study hard, be patient, and take your time to make the right decisions.
Trading can be exciting, but it’s also important to be cautious and keep the odds in your favor.
And that’s what I’m here to help you with!
I can show you the tools to help you spot the hottest stocks of the day…
And how you can get your hands on an algorithm that will give you key levels to enter and trade off of.
I use this tool myself every trading day.
You can see it in action for free when you sign up here.
Have a great day everyone. See you back here tomorrow.
Tim Bohen
Lead Trainer, StocksToTrade