Most people think of the stock market as a strict 9:30 a.m. to 4 p.m. affair. However, there are some important moves that happen before the regular market hours. This is called pre-market trading.

Pre-market trading is not for the faint of heart. It’s often volatile and little understood.

But, as you’ll learn here, if you take the time and effort to learn how to understand pre-market trading, it can potentially provide opportunities for you as a trader.

What is Pre-Market Trading?

Pre-market trading refers to activity in the stock market happening before the regular market session opens.

The stocks that are moving after the market for the day and before it opens the next morning are sometimes nicknamed called pre-market movers.

When is Pre-Market Trading?

Depends on who you ask. Usually, the movements are focused in the early morning, in the hours preceding the regular stock market opening at 9:30 a.m., Monday through Friday.

Usually, pre-market trading sessions will be open somewhere between 4–9:30 a.m.

For example: The Nasdaq premarket session occurs from 4:15–9:29 a.m. Eastern time. This brings it right up to the moment when the regular session opens.

Who Can Trade Pre-Market?

These days, there are many options for pre-market trading. Several brokers count pre-market trading among their offerings, but some have limits on what types of orders can be used.

The exact time frame during which pre-market trading can happen can also depend on the broker. For example: one broker might offer a pre-market session from 4–9:30 a.m., whereas another might offer a pre-market trading session running from 6–9:30 a.m.

The style and how pre-market trades are executed can also vary depending on the broker.

Some brokers, especially the big ones, typically tend to just stick to their regular commissions for these pre-market trades. But there are some exceptions…

Be sure to check the fine print before you start delving into pre-trading because some brokerages have special fees or a surcharge during these times. Sometimes it can be a per share fee, so be sure to check it out.

Your broker’s specific policy should be fairly easy to find either on their website or by contacting their customer service department.

How to Analyze Pre-Market Trading

How can you get a handle on what’s going on in the pre-market scene? Here are some tips and tricks for beginning to understand its movements:

1. Keep up with the headlines. Be sure to look for news that could affect open positions. Upgrades, downgrades, and other stories that can move stocks can help you discover and uncover opportunities for the upcoming session as well as in the pre-market.
2. Look at index futures. Be sure to look at the overnight session highs and lows as reported on the Russell 2000 Index futures, S&P 500, and Nasdaq 100. This is important because it creates support and resistance during the regular market hours.
3. Consider macro forces. Consider what is moving macros, economically speaking. News items are the big catalyst here. See what has been moving the world markets and think about how it could have an impact on the U.S. session. For example: News regarding a central bank or a big item of economic data could make for market movement.
4. Keep track of other traders. What are other traders doing in the pre-market? You can do a scan of pre-market securities by volume on a platform like StocksToTrade and get an idea of where other traders are putting their money. You can then cross-reference this information by looking for catalysts or other things that could be causing the activity.
5. Get on the level. Levels matter when analyzing pre-market trading. Check out the key levels on open positions. Watch for index futures, particularly after big economic data releases. This can precede breakouts or breakdowns in the normal trading hours.
6. Think about timing. Timing is everything when making trades. Take into consideration the time of year, the month, and even the day in question. The season, the proximity to a holiday, the release of earnings reports, and so many things can play into a stock’s performance.
7. Look and project. Look at the closing numbers and the anticipated opening numbers for a given stock. This can help you get an idea of who stands to benefit.
8. Consider the algos. While algorithmic trading is a topic for another day, it’s about algorithms pushing securities to move, and can blow up or deflate the prices temporarily. Could you use these dips to potentially create opportunities?
9. Don’t be swayed. Even if you see a stock going extremely red or green the pre-market, it may not matter. You still need to do research on the expectations for the stock.
10. Be the early bird. Beat the crowd. Use your pre-market research to prepare a list of potential trades. Formulate a great trading plan so that you can execute quickly if you see your entry.

Characteristics of Pre-Market Movers

What should you look for to determine pre-market movement? Here are a few key things to consider:

• Stocks that have higher price gaps based on the previous day’s market close
• Stocks that have noteworthy drops in price
• Stocks with high volume (most actively traded)

Influence of Pre-Market Movers

You’ve probably already figured this out, but let me state it for the record: Evaluating pre-market movers can help you analyze what stocks are active in the market in the hours before the trading day begins.

This can provide opportunities beyond simply picking stocks to trade. Looking at these movers can help you gain insight on what’s happening in the market at large.

For instance, if you notice that there’s a lot of movement in stocks offered by companies within a particular industry, this could tip you off to a big catalyst that could have greater ripples in the market.

You can be clued in by catalysts such as momentum-inspiring company news, mergers, or earnings reports that could affect the overall market.

In this way, pre-market movers can have a big influence on the general tone of the market and can set the stage for how the day will go.

So yes, a pre-market mover can influence your specific stock picks, but in a bigger way, it can also offer information about sectors, industries, and about the direction of the economy.

In this way, even if you have no desire to trade in the pre-market hours, it can still be worth your while to look at what the pre-market movers are doing. It’s not a bad thing to include in your trading routine.

Understanding the differences between pre-market trading and regular hours trading can be difficult.

Lucky for you I’ve narrowed it down the basics….

I’ve laid it out in black and white, no more guesswork.