Premarket Prep for Quick Profits
This strategy works with any stock and is how I trade the open.
This service is for general informational and educational purposes only and is not intended to constitute legal, tax, accounting or investment advice. These are my opinions and observations only. I am not a financial advisor.
Get in, get out.
When I trade the stock market open I am both patient and precise, usually allowing 15 minutes after the bell before I start but more importantly, I am watching levels.
Which levels?
That’s the topic of this morning’s newsletter. I draw the same basic trading levels every time I trade the open and follow the same rules regardless of the stock or ETF.
The steps are simple, the plan is simple, but the discipline is up to you.
Here’s how it works, using SPY as the example.
The first step is to mark out the prior day high and low as well as the premarket high and low. I usually do this about 15 minutes before the open and prefer to use the 10-minute candles.
For Thursday, the premarket high was around $449.34 twenty minutes before the open with a low around $447.18.
The prior day’s high was $447.58 and the low was $445.08.
I also like to highlight long wicks and “tweezer” patterns near these highs and lows. These are areas that the bulls and bears are battling.
In other words, these are supply and demand zones.
In the chart above, you can see the prior day highs forming a zone of supply just below $447.58 and the market sold off.
There were too many sellers to break through and they won out.
Thursday morning showed something different. SPY moved well above the prior day highs and stayed there nearly the entire premarket sessions.
This is a great set up, I’ll explain why.
This strategy relies on following very simple rules. Here they are:
Identify the prior day high and low as well as the premarket high and low.
Identify the the supply and demand zones at these levels.
When stocks break above a prior day or premarket high, take a long position after a retest of the same level holds and then bounces.
When stocks reject at these levels, take a short position on the rejection.
If stocks are near lows, take a short position on a break below and retest of the level and rejection.
If stocks instead bounce off of these low levels, take a long position on the bounce.
If none of these set-ups show up, do nothing.
Number seven is by far the hardest rule to follow. It seems simple, but one of the hardest things for me personally is to not take any trade at all.
I highly recommend trying it (not taking a trade). On choppy days where no set up seems clear, your account will thank you.
Looking at the action Thursday you can see how this trade played out.
The first opportunity came after shares dropped back to test the prior day’s high, stopping just short and turning around for a move higher.
The long wicks and strong reversal did presen an entry point, but it was not as clean and you might have missed it.
That’s ok, trade set up number two was minutes away!
You can see the break above the premarket highs with a strong push and relatively large move for the ten-minute candle that broke through.
The entry comes with the retest of this same level and bounce. There was a long lower wick but buyers quickly bought up the action.
That was a prime entry and SPY continued to climb from there.
Executing the Trade
This set up is simple and can be utilized with just an hour or two of your morning.
It is perfect for getting in trading ahead of the 9-5 workday if that is your grind.
I like trading options, but it is effective with shares and futures as well. The set ups are the same.
When I do trade the open, I like to use options that expire about one week out. It is true that the movement of these options are not going to compare to options expiring on the same day.
Remember, if it can make you money in seconds it can also lose your money in seconds. Always consider how much and how quickly you can lose before thinking about potential profits.
I like to use near the money or just out-of-the-money options contracts for these trades.
I also prefer both SPY and QQQ because of the liquidity and what seems to me to be consistently well-defined levels to trade off of.
Last note, and I can’t stress this enough. This strategy can be effective as long as you don’t force the trades. If the set up isn’t there, it isn’t there. Don’t force it.
Have a great day and finish the week strong! If you’re on X you’ll probably find me talking up a trade or two on Spaces. I hope to see you there!
-Nate
So using this information I applied it to my chart analysis on INTC. I marked out the prior month and week highs/lows. The big gap down from earnings took out the prior week low and pushed it all the way to an AVWAP. Avwap set to pivot reversal candle 10/27/23. Price is now at support with avwap, and outside the bottom bollinger band, and sitting in an area of daily demand (candle 12/23/23) that hasn’t been touched yet. I went long with a $45 call exp 2/23. If you get the chance check it out lmk what you think, if there’s anything you’d do
Thank you for this article. This information is priceless. This is actually my first trade plan I’ve ever written down and just having this in hand I feel more confident going into the markets with an actual PLAN knowing what to look for and forming a base to go off of, instead of eyeballing it. The explanations and breakdowns with the charts *chefs kiss*. Sincerely Thank you!