I’ve heard so many times that a trader should avoid the first 15 to 30 minutes of the trading day. It’s too volatile and unpredictable. Or is it really? Let’s take a closer look at what occurs in this window of time.
The pre-market can give you big hints as to where the market can and will go on any given day. Now there is always uncertainty. However when you take into account some useful tools then you can put the odds more in your favor. The pre-market can be either down, up or flat. This can be caused by a plethora of reasons. News, Earnings, world events etc. This is your starting point. Now that you know where the market stands, you have to prepare your game plan.
Once the market opens you will most likely see a close in the gap. This means if a stock opens lower it will bounce back or if it opens higher it will fall. It does this to close the game and then usually turns around and trends up after the initial 15 to 30 minutes of the day. As I’ve stated in a previous article the market makers are shaking out the weaker hands and preparing for the big move in they’re favor of course.
Your game plan needs to be comprised of a strategy and patience. Figure out what your goals are. To play the contrarian trade or to find a trend. Usually, the market will pick a trend whether upwards or downwards around 10 am. I always use the 5-minute candles and can get in around 2 to 3 solid trades every session in the first 15 to 30 minutes. I play the volatility which in this case is your friend. If I’m looking for a more of a swing trend play then I will watch the 10 am move and see whether we are oversold or overbought and pick a play based on that.
A perfect example was today. I watched Netflix and it was gapped up. I watched it drop significantly off the open and played the bounce. I bought 10 contracts of the 145 weekly call options at 73 cents. In the next two candles, it bounced very nicely and I sold those contracts at 85 cents. A good move for 10 minutes of work. This is a trade that usually works out for me 80-90% of the time. Remember these moves happen very fast so sometimes it’s hard to precisely time the trade and it might go slightly against you. The strength in the move is so strong that the reverse will happen and take you for a nice ride. Don’t be greedy because sometimes holding too long in this 15 to 30-minute time frame can burn you. My profit target is usually 5-10 cents per contract. As I always say, I go for singles and doubles. Slow and steady wins the race.
To find these stocks I have always searched for tech stocks as well as pharma stocks. I usually trade FB, NFLX, and GOOG. These 3 are great and once you become familiar with them you will see how they move day-to-day and anticipate the moves that they produce. I’ve heard plenty of times how penny stocks do the same. However, I don’t trade those so I cannot give advice on how to trade those. Again do your research and you will find a handful that you trade regularly and make you a nice profit day in and day out.
The take home message is this. Take advantage of the first 15 to 30 minutes of the market. There are many factors to consider before you start jumping in and playing this extremely volatile trading session. Factor in pre-market price action, momentum indicators, volume and overall market conditions including how strong the trend is. I recommend paper trading this strategy and figuring out what works for you. The middle of the day is usually flat and offers no real opportunity to make money unless you’re buying or selling for a longer term investment strategy. Learn this important time frame and test it out. You might be surprised to see what you’ve been missing this whole time!