Just like any job, a trader has a schedule and the trading year is somewhat seasonal. Traders do certain things at certain times of the year and can also come to expect certain times of the year to be better than other times. Read on as we cover what to do at various times of the day to prepare for trading, to expect certain trading opportunities, and to prepare for future trading opportunities.
The Morning Rush
The old saying “the early bird gets the worm”, certainly holds true in preparing for the market day. Pre-market preparation is extremely helpful when getting ready to trade each morning. Market time is widely accepted to be New York time (Eastern Time) as New York is considered to be the financial capital of the world. Most traders who want to have a good head start on the market should be ready to get up around 6:30AM ET to start their pre-market preparation. Once you are awake and ready for the day, you should plan to start reading news and economic reports that usually get published overnight. These news and economic reports will affect individual stocks and sectors. You should list the noteworthy stocks and sectors on a piece of paper, or in some digital format such as a spreadsheet. Many traders use a Market Viewer inside of their DAS software to list potential long or short ideas based off of the news they’ve read during their pre-market preparation.
7:30AM: The Morning Rush (Long Side Trades)
Many online brokers do not offer true direct access to the markets the way DAS Trader does. Because of this, they only accept orders in the pre-market but don’t actually put them to the market until 8 AM. At 8 AM they dump all those orders into the market causing a rush for certain stocks in one direction or another. Traders that use DAS Trader can start to prepare at 7:30 AM for this online broker dump of pre-market orders. The main criteria that you would be looking for is stocks that are mentioned in the mainstream financial news media for having news or some sort of catalyst. The morning rush tends to work better in an up market as stocks that have had positive news could be bought prior to 8 AM via some of the exchanges which offer a pre-market execution. When online brokers start to execute orders at 8 AM, your order which was purchased at a lower or more advantageous price will get pushed higher on the buying pressure from the new order that comes into the market at 8 AM.
7:30AM: The Morning Dump (Short Side version of the Morning Rush)
On the short side, we call this the morning dump. Generally it does not work as well as the morning rush because down markets tend to be disinterested markets while up markets tend to be overly elated, overly exuberant markets. This technique can work on the sell side as well. On the sell side, be careful that you don’t get stuck in a trade to the short side, so it’s advantageous for you to go smaller than normal share size when using this technique as a short. It is not as easy to get into shorts and in some cases, when shorts get squeezed they can rip to the upside. We’ve seen this recently in stocks like GameStop ($GME) and AMC Movie Theaters ($AMC).
8-8:30AM: Economic Reports and Regularly Scheduled News Events
Most news and economic reports come out between 8 – 8:30 AM if they’re going to be pre-market economic reports. For instance, Non-Farm Payrolls are usually announced at 8:30 AM on Friday so as not to affect the market during the trading day.
In our next DAS Trader Educational blog, we will pick up where we left off and talk about market prep for Gap Trading.
Written by Michael DiGioia, Director of Education
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