Pre Market Trading Strategies & Chart Example

How Does Pre-Market Trading Work?

Pre-market trading is when stocks are traded before the regular session begins at 9:30 am Eastern.  The pre-market session is from 8:00 am est. - 9:30 am est.  Prior to the advent of the Internet and Electronic Communications Network (ECNs), retail investors were unable to easily place pre-market orders.  Retail traders also had a tough time finding stock quotes for issues in the pre-market since the stocks were so thinly traded. 

Must Use Limit Orders

Trading in the pre-market is accompanied with wild price swings and large bid/ask spreads.  So a trader must use a limit order to ensure they get the price they are looking for.  Market orders can sometimes lead to a 5% loss or more as a result of the large spreads.

Light Volume

Pre-market trading is extremely light, because the broad market is not actively trading the stock.  Very rarely can a trader actively anticipate how a stock will trade once the market opens.  So it is extremely tough to buy or sell a security when only .25% of the total trading volume is executed in the pre-market for the stock.

Pre-Market Analysis

If a day trader actively trades the most volatile stocks, they must scan the market before it opens to identify stocks are in the news.  This process allows the "game" to slow down to prevent the day trader from frantically trying to identify setups during the session.

Pre-Market Trading Chart Example

Most direct access brokers offer the option to print the candlesticks from the pre-market trading session.  This is critical because it allows a trader to see how a stock is trading during the morning gap.