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Key Tips for Making the Most of Premarket Trading Hours

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While most stock trading happens in the regular hours between 9:30 AM and 4 PM EST, premarket and after-hours does occur as well. This is the area where the hustlers usually play. Thus, both of these extended periods have fewer investors involved in active trading, making them great opportunities for capitalizing on volatility. Premarket and after-hours trading is certainly not for the faint of heart. If you’re interested in breaking into the world of extended hours you need to take some time and apply some genuine effort to understand how they differ. While the stock market can be overwhelming, you can find new opportunities to earn during these extended hours if you’re smart and innovation with your approach.

What is Premarket Trading?

Premarket trading in the United States happens before the market opens at 9:30 AM EST. The exact time depends on the exchange you use, but most commonly the hours are between 4 AM and 9:30 AM. This premarket occurs right up until the opening bell that signals regular trading hours of business.

Who Can Take Advantage of These Hours?

Several online brokers offer premarket, but there may be limits on the types of orders you can create during this period. The timeframe for trading before the market opens also depends on the broker you use. There are many brokers who refuse to even engage in this type of trading, typically the low to no fee companies that run razor thin margins. Then there are some brokers offer full access to before market times, starting at 4 AM. Other brokers may start at 6 AM, meaning you miss out on two hours offered by other brokers. Broker commission fees may also differ between premarket trading and regular hours. Make sure you know if your broker might charge higher commission fees or a surcharge for trading outside regular hours (hint: there usually is), as any experienced investor is always aware of the fees involved in trading. After all, fees eat away a good chunk of our profits and gains over our trading lifetimes.

The Benefits of Trading Before the Market Opens

Getting a handle on how the market will react to early news is one of the primary advantages of trading before the market opens. Let’s take a look at some of the tips you should consider to help you get a good reading on how the market will perform in these early hours.

  • Follow the News: The news should be the number one driver for which positions you open or close that day. Upgrades, downgrades, or any other global stories that could impact your chosen industry should be followed. Set up an RSS reader that lets you quickly pull in news feeds from multiple sources.  You can organize these feeds to make it easier to skim for quick news. Likewise, there are stock picking services like the Motley Fool Stock Advisor Review that provides some great tips on stock picks. 
  • Index Futures Movement: Before you make any moves in a premarket trading session, check the S&P 500 and NASDAQ 100. Overnight session highs and lows can give you a good idea of which stocks you want to target that day, and perhaps those that you want to stay away from.
  • Check Volume: You can see what others are doing in the pre-market by doing a volume scan on securities. You will see which stocks have the most volume during these hours and track these movements by matching up news reports. This certainly takes a bit more time and effort, though there are ways to automate this process utilizing the aforementioned RSS feeds and some API add-ons in excel with some paid services. While it can cost you a bit, time is money, and it frees up the ability to focus on your trading effort and strategy.
  • Timing Is Everything: Timing your trades is essential even during the regular hours. But you should consider the time of year, month, and day, which is especially true if you’re hoping to capitalize on the earnings season.