How to Get Started with Premarket Trading

For many traders, the time before the market opens at 9:30 am EST is a time for reflection and planning. It's when you wake up early, check your strategy, catch up on news for the day, and make sure that you're ready to implement some good decisions in the hours ahead. However, there is another way to use your time each morning if you're an early bird. 

Before the bell rings at 9:30 am, people around the world are taking part in a process known as premarket trading. Supported by brokers with ECN technology, this allows investors from all backgrounds to sell and purchase stocks, even when the NYSE isn't technically open yet. Depending on where you want to manage your investments, you could even start trading as early as 4 am with certain brokers. The question is, how do you get started with a strategy like that?

Trading in the Premarket

Premarket trading is just one part of the out-of-hours trading environment that investors and stock enthusiasts need to be aware of. The other side of the coin is after hours trading. Both of these options allow users to implement trades using limit orders through dark pools and ECNs. Often, it's a good idea to use a direct access broker to engage in these trades, as it allows for better routing and liquidity in the long-term. 

Depending on your unique strategy, you may make trades according to resistance/support trend lines, momentum indicators, patterns, and other insights. You might also look into the news of the day and use what you learn to buy or sell increasing positions in your chosen securities. Most experts recommend that only the most seasoned and experienced of traders should consider trading out of standard hours. That's because the premarket is very complicated, with limited volume and liquidity. If you get into a position that you no longer want to be in, it's hard to get out of that position again until the market official opens. 

Figuring out What's Going on in the Premarket 

The style of your premarket trading sessions and what you do with the information you have will depend on the kind of broker that you're working with. You'll need to discuss this option carefully with your broker before you get started. It's also worth making sure that you take steps to learn the unique movements of the premarket environment. For instance:

• Always keep up with the headlines: Last-minute news can easily impact open positions. Look at things like downgrades, upgrades and other stories that might move the value of your stock in one direction or the other.

• Look at index futures in the overnight sessions for insights into which stocks have the most movement. This will give you a better chance of making the right decisions with your cash.

• Always aim for volume: When you're trading in the premarket, any stock that moves with volume is often a good idea as it means you'll be able to buy and sell more freely - without waiting for the bell to ring.