I am really starting to sound a lot like Bella these days. When he lectures our trainees he tends to repeat himself over and over and over again. My style tends to be more like “this is the concept–good luck” (maybe not that bad:) I didn’t fill out a lot of “blue books” in college and law school. I like to get right to the point and then move on to the next thing. Perhaps that is not the best teaching style for those who are new at something and trying to develop an extensive set of skills. So now I am Mr. Repeat. I’m pretty sure I have discussed at least 6 times during our AM Meeting this month that people must follow pre-market trends right on the Open. Let me explain.
Many In Play stocks we follow and the market itself as viewed through the SPY trade significant volume before US Markets open at 9;30AM. The trends and patterns that we observe from 8:00AM to 9:30AM give us a HUGE advantage right as the market Opens. We have a better understanding of whether a stock that has gapped up or down significantly will follow through or fill the gap.
By following the trend that has occurred in the pre-market traders simultaneously can achieve two things that potentially will completely change their results for the day.
- They avoid getting in a quick hole right on the Open which invariably causes them stress and drains some of their mental capital fighting to get positive
- They can make a quick chop, which puts them in a position of strength to attack the trading opportunities that present themselves following the Open
If you want to know how important both of the above can be just speak to anyone who has attempted to trade professionally for more than a few months. Even the most experienced traders receive huge boost in their psyche from making a quick profit right on the Open.
Take a look at the chart below in ORCL. It reported earnings yesterday after the close. The initial reaction was positive in after hours trading. When we came in this morning it was gapping above the after hours high which is generally bullish. As pre-market trading picked up at 8:00AM sellers appeared and it started to trend lower. So as I began to discuss the price action in the AM Meeting I pointed out that if it dropped below 29.20 I would focus on being short. But as our meeting progressed ORCL started to move higher breaking the pre-market downtrend establishing a new pre-market high. My only option at that point was to focus on getting long.
The market opened and 29.80 held the bid so I got long and a few minutes later I was selling between 30.40 and 30.60. This put me in a position of strength to buy on the pullback to 30.20 and made it easier to be patient enough to hold the position for several hours as it trended up to 31.
This video explains the concept as well at the 3:10 mark.
