Many people like to dabble in premarket trading, and that’s great…
But it’s only for seasoned traders who have a higher-than-average risk tolerance, have practiced their strategies, and know what they’re getting into.
Premarket trading is very risky.
By the way, if you’re unfamiliar with the concept of risk tolerance and risk management, every trader needs to understand it. Watch my explainer video below:
If you’re a new trader and are more risk-averse, I recommend…actually, I urge you to wait until at least 9:45 am Eastern to trade.
Our Oracle system was designed for traders like you.
It gives you entry signals to use after the market opens…and finds winners almost daily.
Learn more about Oracle, our algorithmic trading tool here.
For those of you who are ready to trade premarket, support and resistance levels are your friends.
This past Friday, during my Premarket Prep, I talked about a stock I saw being a potential big winner, all due to the resistance lines I charted before the market open.
It was the perfect opportunity for premarket traders.
What are support and resistance levels?
Support and resistance levels are price points on a chart where the stock tends to pause or reverse its direction. Think of them as psychological barriers in the market—support is like the floor holding the price up, and resistance is the ceiling that keeps it from rising further.
The support level is the price where a stock tends to find buying interest as it drops. It’s where demand is strong enough to prevent the price from falling further.
We often look at support levels as potential entry points, buying in anticipation of a bounce.
The resistance level is the price where a stock typically faces selling pressure as it rises. It’s where supply is strong enough to prevent the price from climbing higher.
Traders often see resistance levels as potential exit points, selling in anticipation of a reversal.
Why are support and resistance so important?
Support and resistance levels help you identify key areas where the price action is likely to change. By recognizing these levels, you can better time your entries and exits, manage your risk, and set more effective stop-loss orders and target prices.
How to identify support and resistance levels:
Historical price data: Look at a chart and find price points where the stock has reversed direction multiple times. These points often become strong support or resistance levels.
Trendlines: Draw trendlines connecting the highs (for resistance) and the lows (for support) on a chart. The more times the price has touched these lines without breaking through, the more certain you can be that these are the levels you should rely on.
Moving averages: These can act as dynamic support and resistance levels. For instance, a stock might bounce off its 50-day moving average, which can serve as support, or struggle to break above its 200-day moving average, which can act as resistance.
Psychological levels: As crazy as it may sound, round numbers like $50, $100, or $1,000 often act as psychological support or resistance levels. Traders tend to place buy or sell orders around these levels, making them significant.
You’ll want to have a robust trading platform to track price changes and patterns and to overlay your charts with indicators like I mentioned above.
My top choice is StocksToTrade.
It has technical indicators, intraday data, dynamic charts, and stock screening capabilities that day traders like me look for in a platform.
Grab your 14-day StocksToTrade trial today — it’s only $7!
So how did all of this work for FSD Pharma Inc. (NASDAQ: HUGE)?
Did my technical analysis bear fruit?
It sure did!
This is the stock chart for FSD Pharma Inc. (NASDAQ: HUGE) that I saw before the market opened on Friday.
HUGE Intraday, 1-Minute Candles Chart; SteadyTrade
So what I saw here was HUGE breaking through its first resistance level of $0.14 per share and then spiking to top out between $0.18 and $0.19.
That new resistance level of $0.18 determined a new potential breakout point.
In essence, the resistance level becomes the new support level if it indeed breaks out at that price, just as $0.14 had changed from a resistance level to a support level.
My instructions to my premarket traders were to wait until it reached $0.18 again before they entered the trade.
If you don’t want to wait until the Oracle signal, use resistance levels to find your buy-in point.
It might not hit that resistance until after the open, but this approach does give you an informed entry choice to trade premarket if it does.
Resistance levels can determine “spikeability” — yes, I made up that term — as well as entry and exit points. Use them!
So let’s see how HUGE did after my Premarket Prep trading advice….
HUGE Intraday Chart; 1-Minute Candles; SteadyTrade
On the first pop, which happened premarket, the stock gained 11%* in just minutes.
And if you set a stop-loss, which every trader should do, that got you out of the trade when it pulled back, then good! You reduced your trading risk and that’s always something to be happy about…
Even if you were stopped out, you could have gotten in again when it hit $0.18 and watch it really spike. And this time you could have made a whopping 72%*!
Oh, and by the way, for any other premarket traders that didn’t use my resistance level methodology, our service, Breaking News Chat, caught this one around 8:30 am Eastern.
Breaking News Chat is a financial news chatroom led by veteran Wall Street traders, each with over 20 years of experience. They get you the information you need before anyone else.
Get ahead of the market with the news you can use!
As with any type of trading strategy, the support resistance approach isn’t foolproof.
Market conditions can change quickly, and what once appeared to be a strong support or resistance level can suddenly break down.
Always use these levels in conjunction with other tools, like volume analysis or indicators, to confirm what you think you’re seeing before entering a trade.
In conclusion:
As I mentioned before, the support resistance strategy is a great way to make informed trading decisions if you’re ready to trade premarket. Remember, the premarket environment is fraught with risk and prices can move very quickly, often in the wrong direction.
If you are ready, this method can be extremely profitable. Memorize everything I told you, practice it by paper trading before risking your own capital, and always set a stop-loss when you finally pull the trigger.
Have a great day everyone. See you back here tomorrow.
Tim Bohen
Lead Trainer, StocksToTrade
P.S.
Trading stocks is exciting and very rewarding…I know because I do it every day and I love it.
But have you ever considered adding options trading to your playbook?
If you have, you should check out this presentation on Thursday, August 15th, at 8 p.m. Eastern.
My colleague and seasoned options trader, Jeff Zaniniri, has developed an AI-powered algorithm called GAMMA that exploits a market inefficiency, or glitch, within certain options contracts.
These glitches trigger alerts in his system, which Jeff will share with his GAMMA subscribers every Monday, Wednesday, and Friday.
He’ll give you all the details during next Thursday’s live presentation, but you have to be there.
Register for the 24-Hour Glitch today!