Opportunities in the Market Before Opening
Most day traders trade futures before the market opens and continue to trade after the market officially opens. You don’t have to trade in the market before the opening, but many great trades occur during that period. If you’re a day trader, you may benefit from learning to trade before the opening. Once you learn how it works, you can consider incorporating it into your trading plan.
Things to Watch in the Market Before Opening
Many economic data (and data related to futures) are released in the market before opening. Checking the economic calendar every morning is a good habit to get into.
Make sure to exit all positions at least one minute before major data releases. Then, do not open any new positions starting five minutes before the data release. Data releases can cause price gaps. Price gaps are price areas where no changes occur; they can make it difficult to control risk. Once the data is released, you can begin monitoring the correct trading setups again.
During the pre-opening period, you need to be very cautious when monitoring news releases. Not only are there more data releases during the pre-opening period than during regular trading hours, but these releases can also impact prices more than they would if trading volume were higher. This goes back to the lower trading volume during the pre-opening period.
Trading Methods in the Market Before Opening
You do not need to change your trading methods to trade in the market before the opening. You can trade in the market before the opening the same way you trade during regular trading hours.
Although the pre-opening market can provide some clues on how the day will unfold, it is often not reliable to that extent. For example, if futures are sharply down in the pre-opening market, many traders may be pessimistic about the opening. Once trading starts, futures may rise based on some new bullish motivations. Similarly, if futures are up before the opening, they may continue to rise after the opening, or they may not.
In other words, do not rely on the pre-opening market’s direction to try to determine the trend for the rest of the day. Instead, you should stick to trading the short-term trends as they unfold and not deviate from them. Trying to make grand predictions about how the pre-opening market will affect the rest of the session will cost you.
Holding Positions During Opening
Some traders insist that any positions should be closed before the opening, while others find there is no reason to do so. There are two ways you can think about this.
The simple way is to take your trades and place a stop loss and a target. Then, do nothing until either the stop loss or target is hit. The price reaches your target or stop loss just as it would at any other time. However, if you have a very tight stop loss on a position, you may not want to hold it through the opening since the immediate spike in volatility can easily trigger the stop loss excessively.
Another way is to exit positions one minute before the opening, just as you do before data releases.
You should consider testing both methods and see which works best for you and your strategies. Keep track of your profits in the market before the opening when you exit before the opening and when you hold those positions until the market reaches your target. Over several months, you will have a very good gauge on whether you should hold positions in the market before the opening with your strategies.
Source:
https://www.thebalancemoney.com/how-to-day-trade-pre-market-futures-4148094
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