Seeing a stock run 100%+ in premarket can make any trader want to jump in and catch a piece of the move…
But premarket trading isn’t for everyone…
There are some dangers involved — especially for new traders.
And if you don’t know what you’re getting into, you can end up with big losses, or even a blown-up account.
So before you try to trade all the premarket runners we’ve seen over the last few weeks, learn the dangers…
Today I’ll share what those dangers are and why you may want to avoid this risky time to trade…
Premarket Basics
Premarket trading starts at 4:00 a.m. Eastern and lasts until the market opens at 9:30 a.m.
While there isn’t usually a lot of activity that early, some stocks can experience significant movements.
But here’s what you need to know before you trade in premarket…
Less Liquidity
Liquidity refers to how easily you can buy or sell a stock.
If there’s low liquidity, you might find yourself “trading against yourself,” which means you may have to sell at a lower price than you intended just to find a buyer.
So it’s crucial to focus on liquid stocks that have a high volume of shares being traded.
High volume can be relative to the stock’s 60-day average volume, or relative to the float.
A low float stock can spike on little volume, so you have to know when a stock is sustaining the volume, or if it was just one buyer coming in, or a short seller getting out.
A lot of new traders can’t recognize the difference in the beginning, so if you don’t know, it’s best to just avoid a trade.
Uninformed Trading
If a stock is running on news in premarket, the market hasn’t had a lot of time to digest or interpret the news.
Some traders may rush to buy a stock just because there’s a news headline, hoping to capitalize on the buzz.
But just because you think the news is good, it doesn’t mean the market does…
Remember, you can’t beat the market — you can only react to it.
And since it’s tough for new traders to avoid getting caught up in the fear of missing out (FOMO), avoiding the premarket is often the best option.
Give the market time to digest the news so you can make an informed decision.
Wait for the right setup and build the discipline to not click “buy” without understanding the implications.
Aggressive Strategy
Premarket trading is an aggressive strategy.
And what I teach and practice is to get aggressive when things are working.
A common mistake many traders make is becoming more aggressive when things aren’t going well. If you had a terrible day yesterday, it’s a big no-no to trade in premarket.
You need to understand that being aggressive is for when you have a hot hand — when you’re on a winning streak. If you had a great day yesterday, where everything worked perfectly, then it’s a good time to be aggressive.
But if nothing worked yesterday or throughout the week, stay away from risky pre-market trades.
That’s why I always encourage new traders to stick to the 9:45 a.m. or later window where you have a better chance of success.
That way you can determine if there’s enough volume to trade the stock, it gives the market time to digest any news, and it’s a conservative approach so you can let the chart set up a pattern.
All of those components can give you a better edge in the market.
It might mean you miss out on some trades right now while premarket is hot…
But there’s always an ebb and flow to the market.
Soon there will be too many opportunities for you to keep track of and you won’t feel like you’re missing out on any premarket trades.
So get ready for the next hot wave now!
Join me three times a week for my Market Update videos and stay in touch with hot themes and stocks!
Have a great day everyone. See you back here tomorrow.
Tim Bohen
Lead Trainer, StocksToTrade