Volume of trades during Pre-Market Hours as a proper indicator.
For instance, if pre-market volume is exceptionally higher by 300% compared to the average, expect potential significant post-market open movements. Employ RSI and other technical implements to determine whether the stock is destined to rise or fall.
At Opening Bell, the initial 30 minutes set the tone for the whole day. If the stock jumped 5% within the first 15 minutes, it will likely continue to grow throughout the day. VWAP during Opening Bell will help you determine which pressure is stronger – buying or selling.
Employ a Fibonacci retracement analysis to determine that the stock that has dropped to 61.8% is beginning to earn strong backing and will likely experience a strong rally afternoon. Closing Rush is when everybody tries to buy or sell stock as soon as possible: let sales increase by 20% in the final hour;
if the price also jumps, expect this trend to continue with the next trading day.
“Opportunities come infrequently. When it rains gold, put out the bucket, not the thimble”, Warren Buffett once noted.
Pre-Market Hours
The pre-market session, which begins at 4:00 AM and goes on to 9:30 AM EST, provides traders with a unique opportunity to gauge the market’s undercurrents before it opens. Significantly, high trading volume during this time indicates that there’s substantial interest. To quantify how high this is, pay attention to the stock’s average pre-market volume.
For example, if a stock usually sees a volume of 50,000 shares in the pre-market session and then goes on to trade 200,000 shares on a particular morning, it is clear that there has been a fourfold increase in interest. This kind of data is both relevant and vital to forecasting how the day’s trading will move.
While at it, also watch what is happening in the global markets. If the major European or Asian indices are up by 2% or more, take it as a signal for a positive opening in the U.S. markets. As a result, you then use this tidbit of information to change the pre-market trading strategy.
Another factor to consider while trading during these hours is the Relative Strength Index . Keep it in mind that an RSI below 30 is an oversold condition that could mean that it is time to buy a stock in pre-market. An RSI above 70 indicates that there is an overbought condition, at which point a sell may be needed.
While noting that Peter Lynch once said, “Know what you own, and know why you own it”, it is clear that this is crucial, especially during pre-market trading . Beyond the broader market indicators, it is also important to recognize the reasons for owning the stock that is being traded.
Opening Bell
The Opening Bell
The first 30 minutes after the market opens is a high stakes period for all day traders. It seems to set the tone of the trading day. Most stocks surge in volume as traders are still reacting to news from the night before and positioning for the day. This is why they are always looking for “gaps” – this happens when a stock opens at a price above or below the previous day’s close. For example, if a stock closed at a $100 and opens at $105 with the positive earnings announced in the premarket trading hours the stock gapping up is a trader’s opportunity. Traders have to find this gap by tracking pre-market movers. Most modern trading platforms can provide real-time updates to the data.
The use of technical indicators such as the VWAP is critical during the opening bell. The VWAP over the opening will show the average price paid per volume of the stock traded. A stock trading above the VWAP of the opening day might be considered strong , whereas a stock trading below the VWAP of opening might be considered weak .Quick scans for market anomalies such as spikes in volume without spikes in price are also vital, this might signal oncoming large moves. All this is possible through the use of algorithmic trading platforms who can buy or sell in less than a millisecond after identifying the opportunity to do so.
”Be fearful when others are greedy, and greedy when others are fearful.” The market opening is where you can observe the initial reactions of the market and determine whether it is too optimistic or pessimistic about the stock.
Mid-Day Trading Patterns
Mid-day trading, which includes the time frame of 12:00 PM to 2:00 PM EST, often exhibits reduced market volatility and volume.
However, experienced traders can capitalize on a variety of opportunities that are made possible by the mid-day trading. Thus, many traders go for lunch during these hours, which makes the market significantly less noisy.
Therefore, the first useful tool that can be implemented is technical analysis as trends are more evident on technical charts during these hours. The author’s key strategy in this setting is to monitor for consolidation patterns, such as triangles or rectangles .
Another key strategy is to monitor for possible support or resistance levels and consider the utilization of Fibonacci retracement levels as a tool to determine them. Namely, if a stock rises from $10 to $20 and then starts pulling back, a value trader might be looking at the 38.2%, 50%, and 61.8% retracement levels to buy .
The analysis of volume can often give the trader vital clues. For instance, sudden volume spikes, especially if reaching through a known support or resistance level, can be the sign of an even greater move forthcoming.
As George Soros said, “It’s not whether you’re right or wrong that’s important, but how much money you make when you’re right and how much you lose when you’re wrong”. The saying is especially relevant to the mid-day trading when traders have to be extra careful and precise.
Closing Rush
The closing rush, from 3:0 PM to 4:00 PM EST, is the last hour of trading. Generally, it is marked by increased volume and urgency as traders adjust their position at the end of the day.
It usually depicts the most significant price movements, which appears to be a good opportunity for a vigilant trader to gain from potential price growth.
Since the day’s high or low was developed, it is important to watch stocks breaking out of the day’s range. These potentially reflect the most attractive trade opportunities, as they demonstrate the firmest end-of-day momentum which may affect the next day trading session.
At the same time, traders can monitor the cumulative volume in comparison to the morning session. If the cumulative volume is way above the morning one, the final hour of trading appears to be significant. At the same time, it reflects the interest, which is sufficiently high to involve revolving of institutional money in or out of the market. At this time traders use such tools, as the MACD to note reversals in price or to indicate the continuations in price.
The time to place a trade at this time of the day is minimal. As such, risk must be carefully managed through appropriate trading tools, for example, such as order types.
One can employ ‘limit orders’ to assure that buy or sell will not be above or below a certain price, which deters slippage.
Because of the aforementioned reasons, the overall irrational taper and flow of emotion, the best strategy to trade at the closing market is not to, as John Maynard Keynes once exclaimed, “The market can stay irrational longer than you can stay solvent .”
