Premarket Trading Strategy: How to Trade the Pre-Market (2024)

One Google search to find a premarket trading strategy yields 6,080,000 results. Yikes. One can see that premarket trading is alive and well. But that doesn’t mean you should use your same-daytradingstrategies to trade in the premarket.

So what is one to do? Can you equally give the same faith to premarket indicators across every stock? Should you even bother trying to trade the premarket? Luckily, in this blog, I will show you what I do in termsof premarket trading to be successful.

Premarket Trading Strategy Tips

• Avoid trading low floats
• Trade cleancharts
• What are the highs and lows?
• Trade high-volume stocks

In case you didn’t know, the floatis the number of shares available to trade on the open market.

To calculate, you subtract the closely held shares of insiders, employees, and major shareholders — from the outstanding shares.

You can find the number of shares outstanding listed under the heading “Capital Stock” on the company’s balance sheet.

Avoid low-float stocks like the plague if you’re new to trading. Here’s the thing about low-float stocks: they lack supply, and the lower the float, the more potential it has to do something nuts.

Any catalyst that causes demand (or lack thereof) will have a more massive effect on the available shares.

Their moves are often so sudden and sharp that they’re over before you know it. Low float impedes active trading because entering or exiting positions is difficult.

From my experience, not only are they wildly unpredictable, they’re virtually impossible to trade. It’s somewhat akin to an out-of-control roller coaster.

I haven’t experienced that yet, nor do I hope to, but that’s what it would feel like.

Good luck trying to make a consistent profit from them. I don’t suggest trading low-float stocks as a premarket trading strategy for these reasons.

Which brings me to the next pressing question: How do you know a stock has a low float? If you can’t find the float information, that’s probably your first clue.

One thing I’ve noticed with premarket charts is that they tend to be messy with uglycandlesticks. Likewise, with mess comes the potential to make mistakes.

To avoid this, only trade the chart if it looks like one you’d trade during the regular session.

Another crucial point to not overlook is volume. Similarly, any price movement with a correspondingly high volume is considered stronger and more relevant than a similar move with a weak volume.

Along the same lines, volume verifies trends and precedes price. As a rule of thumb, a volume surge is mandatory to confirm a breakout.

When implementing a premarket trading strategy like trading premarket breakouts, there’s no breakout if there’s no volume. All it could mean is that you are staring at a false rally.

Alternatively, if the premarket volume starts to decrease in an upward trend, a reversal is likely coming.

I must add that high volume in the premarket ensures you get the best price. Therefore, if you fail to consider volume as part of your premarket trading strategy, you’ll experience slippage.

In the trading world, slippage is the difference between the bid and the ask price. And the problem with slippage is that it makes getting the best price impossible. Shockingly, you could sometimes pay 5% to 15% extra for the illiquidity.

A key component of a successful premarket trading strategy is the identification of premarket highs and lows. Even though volume is light in the premarket, these key price points will act as price magnets in the regular session.

Let me explain why: For starters, traders in a short position will often place their stops right above the premarket high.

Secondly, those who trade breakouts sometimes ignore the day high and focus on the premarket high as the place to enter their trade.

For those of you who like black-and-white answers, this will disappoint you. There are no hard and fast rules for defining what “low float” is.

I like to set the bar at 300,000 or greater to ensure you’re trading a liquid stock. All of this is to prevent you from being in a situation where you can’t find a buyer or a seller.

But the float should also be less than 20 million shares traded. Stocks with floats over 20 million typically don’t have the big daily price moves you want or need for day trading.

Take, for example, an Apple-sized company with 15 billion shares outstanding. Unsurprisingly, the stock will have difficulty making any substantial moves unless there are catalysts, like earnings or a new product announcement. Generally, my preference is to trade optionson the higher float stocks.

If you want to trade low floats, take our day trading course.

Sometimes, you wake up early and see a massive price surge, but only on 15,000 shares. Understandably, this will give you the illusion of a runner.

However, with such low volume, it only takes one large bank move to place a sell order, squashing your morning profits.

What should you look at?

I suggest you look at how much the stock normally trades daily. But at a bare minimum, you should look for at least 100k shares traded daily.

This isn’t enough for a stock like Apple. But, for a stock that trades 500,000 daily on average, 100,000 shares is good premarket movement.

There’s no quick, get-rich solution; if anyone tells you otherwise, run. If you want to learn a premarket trading strategy, you’ve come to the right community.

We have thousands of dollars worth of freecourses designed to teach you how to trade stocks correctly.I hope this helped, and enjoy the rest of your week!

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