One of my favorite and consistently profitable setups is a “No-New High” trade that uses premarket levels as a gauge to see if it wants to push higher for the day or fail and fade. Pre-market data plays an important role in normal trading hours so I like to look at the highs and lows that are put in before the market opens on the 2-minute chart and see how it lines up with my stochastics and floor pivots. In this case, I was trading the SPYs on Wednesday and as you can see in the chart below, premarket prices (shaded area of chart to the left) were trending up with a peak marked by the red line at $221.84.

Since price. was trending up before the open I wanted to see prices continue higher to confirm the trend but instead, prices tested $221.80 multiple times only to fail as is evident with the topping tails marked by the red down arrow. This is the first indication that buyers are not as strong as the sellers and the prices are more likely to drop if they can’t break that premarket high.

(Click on image to enlarge)

You’ll also notice that the stochastics were over bought and starting to trail down further pointing to a fade from premarket high levels. I took a short on the third candle that failed the $221.80 level at $221.77 with a tight stop just above the premarket high at $221.85. We know that if it pushed higher than that we were wrong and that the trade isn’t going to plan so it would be time to bail and move on. In this case, prices action worked out perfectly and faded hard from highs. I trimmed some profit at the VWAP and again at the first floor pivot at $221.51 while holding some for a bigger move. After taking some profit I like to move my stop to break-even creating a riskless trade and one that I can let ride for as long as possible.

I was able to hold on long enough to take the rest of my trade off as prices flushed through 221.20 area making me over 50 cents in profit. What’s nice about this trade set up is that it is easy to identify your risk and the rewards can be huge if it plays out to plan. Keep this setup on your radar next time you see prices trending in the premarket (also works great as a No-New Low trade). This trade turned out to be an A+ setup that gave me a great cushion to trade off of for the rest of the day. If you have any questions about this setup, feel free to leave us a message below!