Today, I want to talk about trading premarket.
This can be a game-changer for traders looking for early opportunities (between 4:00 am and 9:30 am Eastern) to get in on some big stock movers before the regular market hours.
If you’re one of the first traders to react to a big news catalyst, you could potentially get in before the crowd, which means riding a stock higher (or shorting it) before the volume really picks up.
I’m a big proponent of premarket trading, and I do it myself…But remember, I’ve been trading for 15+ years so I’m a seasoned player in the game.
I want to stress the point that if you’re a newbie, you should not be trading during premarket hours.
Even for those of you who are experienced and fully prepared to do it, trading premarket can be profitable but also very dangerous if you’re not careful. So, there are some essential things you need to know before jumping in.
First, Be Aware of the Risks
Here’s what I see a lot—traders spot a stock up big in the premarket and think, “Wow, maybe I can make a couple hundred bucks before heading to work.”
And yes, premarket trading can be successful. But let’s talk about why you need to approach it cautiously.
The following are the risks of premarket trading:
Low Liquidity
There aren’t as many traders around, meaning there’s less volume. And when there’s less volume, you get wider spreads (the difference between the bid and ask price). This makes it harder to execute trades at the price you want.
If the stock moves against you, you might be left holding your position without anyone to buy it from you right away.
For example, you could be sitting on a green trade, but if there’s no one bidding on the stock, you’ll have to keep lowering your offer just to find someone to take your shares off your hands. You basically end up trading against yourself.
And if you short the stock, your downside is unlimited…So if there’s no one to sell you back your shares, you could be headed for huge trouble.
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Volatility
Premarket moves can be highly volatile. Stocks can swing wildly based on limited information and small order sizes.
You can see huge price jumps or drops in a matter of minutes—sometimes without any major news to support it.
If you’re not ready for these moves or don’t have a stop-loss in place, a huge downturn can blindside you.
Volatility is great when you’re on the right side of the trade, but it’s brutal when you’re on the wrong side.
Limited Data
During premarket hours, you often don’t have the benefit of the full picture. Analysts aren’t awake yet, there aren’t as many news reports, and you don’t have the same level of access to information you might have once the market officially opens.
A lot of technical indicators aren’t as informative in a low-volume, illiquid environment. So what looks like a clear breakout or breakdown could actually be a false signal.
And if you do get news, take the time to digest it. Don’t fall for FOMO…
Just because there’s a headline with some flashy buzzwords doesn’t mean you should hit the “buy” button without understanding what’s really going on.
In fact, because a lot of brokerages don’t actually allow premarket trading until 8 am, many companies time their press releases for that exact moment to get people rushing in and buying their stock.
Don’t be one of those people. Avoid getting caught up in the frenzy.
My advice is to only trade premarket if you really understand the news and believe the move is justified.
And speaking of news, you should check out our Breaking News Chat service.
This is a financial news chatroom led by veteran Wall Street traders, each with over 20 years of experience. They filter out all the noise and give you only the information you can use.
And by the way, it delivers news during pre and regular market hours.
Get ahead of the market with the news you can use!
Broker Limitations
Not all brokers allow premarket trading, and even if they do, they may not offer the best execution. I
If your broker doesn’t have the infrastructure to handle these early trades efficiently, you could get stuck with bad fills or orders that don’t execute when you expect them to.
If You’re Ready to Trade Premarket, Here’s How to Do It.
Now that we’ve covered the risks, let’s talk about how to trade premarket safely and effectively—because it can be done with the right mindset and approach.
Use News Catalysts
Don’t trade random stocks just because they’re moving. Focus on stocks with solid news catalysts—earnings, product launches, FDA approvals, big contracts—something concrete that can justify the price movement.
Watch the Volume
Even though volume is always lower during premarket hours, you still want to make sure there’s enough trading activity to justify your position.
If a stock is moving on tiny volume, it’s more likely to be manipulated or experience exaggerated price swings.
Look for stocks that have at least some consistent volume to avoid being stuck in illiquid trades.
Use Limit Orders
Always use limit orders in premarket trading. Since the bid-ask spread can be wider, market orders might get you filled at a price far from where you intended.
With limit orders, you set the exact price you’re willing to pay (or sell at), which helps protect you from those wild swings in price.
Have a Plan for the Open
Don’t forget—the regular market is coming, and that’s when the real action begins. Know your exit strategy before 9:30 a.m. rolls around.
Are you planning to hold into the open? Are you going to sell into strength premarket? These are things you need to decide ahead of time.
And if you’re in a stock that’s running wild premarket, consider locking in profits before the market opens to avoid getting caught in the opening volatility.
On the other hand, if you think the stock has legs, prepare for potential pullbacks at the open when volume floods in.
Size Appropriately
Given the volatility and lower liquidity, you should trade smaller position sizes premarket. You don’t want to risk too much capital on a trade that could turn against you fast.
Don’t Swing for the Fences
Trading premarket with lofty goals, when stocks are volatile and moving quickly, will lead to disaster. I don’t care how experienced you are.
Premarket trading is for singles, not home runs.
My Final Thoughts…
Trading premarket can give you an edge—if you know how to navigate the risks. The key is discipline. Stick to stocks with legitimate catalysts, manage your risk with smaller position sizes, and always have an exit strategy in place.
Remember, just because a stock is moving premarket doesn’t mean it’s a sure thing.
Trading is about smart decisions, and nowhere is that more important than in premarket.
To learn more about premarket trading, tune in to one of our free daily webinars.
They run all day and offer trading tips and tricks, information about how we use our proprietary Oracle system, and other valuable training.
And if you’re looking for other strategies or stock ideas, subscribe to our StocksToTrade Advisory service.
Every STT Advisory member gets a monthly newsletter with my top stock picks, three weekly videos that show what I’m currently watching, bonus reports, and more.
Sign up for StocksToTrade Advisory right here!
Have a great day, everyone. See you back here tomorrow.
Tim Bohen
Lead Trainer, StocksToTrade