The REAL Reason Pre-Market Trading Is Better…

What up, everyone? All right, so in today's episode, I'm going to teach the importance of pre-market and after-hours trading. I'm seeing a lot of traders that are only trading during the traditional market session, which begins at 9:30 a.m. and closes at 4:00 p.m. And as a result, you're missing some of these huge moves we're seeing either pre-market or after hours. Now, there's a historical purpose behind why we see a lot of companies put out these headlines during the pre-market or after-hours session. And there's also some history around my own trading and reasons why I didn't trade pre-market up until 2020. Something changed in 2020 and after that, my entire strategy shifted from beginning at 9:30 to beginning at 7:00 a.m., which is when I currently sit down and start trading. Now, to complicate [snorts] things, a lot of brokers don't make it easy to trade pre-market. By default, only set you up to trade during regular hours. So, when you try to execute a trade in the pre-market or after-hours session, it gets rejected, doesn't give you any messages to why it's rejected, and so you're just sitting there confused and unable to place a trade thinking that, you know, you're not allowed to. Well, you are allowed to. You just have to learn how to adjust your settings in your account to enable you to trade pre-market. So, we've got a lot to cover today. We're going to jump on the whiteboard and get right into it. Companies are more likely to put out news either pre-market or after-hours. Why is that? So, let's sort of map out uh the trading hours. So, 4:00 a.m. is the beginning of pre-market, which goes to um 9:30 a.m. And then this is regular hours here until 4:00 p.m. And then we've got after-hours till 8:00 p.m. And then overnight is the 24-hour market, which has fairly light volume. So, between the hours of 9:30 a.m. and 4:00 p.m., we have what are known as halt levels. And these are limit up limit down halts. They're volatility trading pauses. And so, if a stock goes up, and this is generally a tier one S&P 500 stock more than 5% in less than 5 minutes, the stock will get paused on a trading halt for a minimum of 5 minutes. And it gives traders a chance to kind of figure out what's going on with this stock and, you know, sort of get oriented. Now, uh tier two securities, the threshold's a little higher. It's at 10%, and lower price securities can be um as much as 20%, but nonetheless, because of this um this mechanism in the market to control volatility, and this is really specific to regular trading hours, and it's designed to prevent flash crashes. It's not about preventing a stock from going up 300%. It's about preventing a stock from dropping 70%. So, we have these this mechanism for halts. But here's the problem. You have companies, um you know, big S&P 500 companies, Nasdaq companies. You've got Just think about all these tech companies, Apple, Netflix, you know, Google, etc. They put out news like quarterly earnings, and suddenly the stock can have a big reaction. Now, they don't want trading to be paused in the middle of that big reaction because it puts a damper on the momentum. So, what do they do? They release the news during the time of day when there are no halt levels. So, these halt levels are between 9:30 a.m. and 4:00 p.m. So, a lot of those big California tech companies, when do they release news? It's right after the closing bell. So, after 4:00 p.m., which means the stock in this window, all of a sudden has news, and it could squeeze up 15 or 20% in 10 minutes, and it's not going to get halted. So, you get the big volatility, and then going into the next trading day, it's opening higher, and then just continues to trend higher, but doesn't have that knee-jerk reaction. Now, the a lot of these big tech companies release their news in after-hours trading, but a lot of small-cap companies actually release their news during the pre-market session, where there's also no halt levels. So, between 4:00 a.m. and 9:30 a.m., this is when we see a lot of small-cap companies putting out breaking news. And so, a stock price at $2 a share puts out breaking news, and suddenly squeezes up to 250 to 3, 350 to 4, 450 to 5, and all of a sudden it's up 3, 4, 500%. If that same headline had come out at 9:30 or 10:00 a.m., then you wouldn't have gotten that type of price action because of the halt levels. Okay. So, now if we look at my trading here, and I'm going to jump onto the screen share, if we looked at my metrics, we just take a look at my metrics 7 years ago, 10 years ago, this is from 2017 right here. And I was up $89,000 in this month, and let's look at the time of day that I was trading. I was trading beginning at It says 9:00 a.m., but if we broke this down to a 30-minute segment, I began trading at 9:30 in the morning, and I trade from 9:30 to 10:00. Isn't that interesting? So, why was I trading from 9:30 to 10:00? Because prior to commission-free trading, prior to the pandemic, we didn't have enough volume for the market to really react that much to small-cap stocks with news between 4:00 a.m. and 9:30. And so, essentially, what would happen is at the 9:30 opening bell, that's when people would begin trading the stocks that had these headlines from pre-market. So, we would have basically we would sit down, and at, you know, 8:45, so, you know, or even just 9:15, 9:15 a.m., we'd have a list of, you you number stock 1, 2, 3, four, and each of these stocks had news, and so we would check the headline, and they might be up like, you know, 15% or, you know, 18%, 20 you know, well, this I 20 22%, let's just say, 27%, I guess that's what that looks like, um and 31%. So, they'd be up a little bit, but not a lot, and the volume would be very light. But, then as soon as the opening bell would ring, traders would be jumping on the one that was the most obvious, whichever one this would be. And so, I would start trading right at 9:30. And then, as you may recall, in the fall of 2019, all brokers uh switched to commission-free trading, and suddenly the volume in the market increased. And then during the pandemic, during the lockdown and everything else, people were on furlough and, you know, work from home, whatever, um unemployment, and people started trading. They got these stimulus checks, and so now people are trading in the market, and this is incredible. All of a sudden, we had this day where we were looking at a stock that was on the list, just like what I just showed you, uh but it started moving before the opening bell. And I was like, "Oh my gosh, it's starting to break this pivot. The the price that I wanted to get in at is about to break." And so, I just pressed the buy button. And it was like 9:29, and my order filled. And I was like, "Oh my gosh, I'm in pre-market. The bell hasn't even rung yet." And the stock ripped. The next day, same exact thing happened. The stock that was the most obvious started to pull away just before the opening bell, and within a week, all of a sudden, traders were buying the second these stocks had breaking news. The second the news came out, all of a sudden we had a shift in the market, and now it's been, you know, 7 years, 6 years since that occurred, and at this point, my trading has changed dramatically. In not in terms of So, this is like 7 years ago. Not in terms of the price of the stocks I trade, but just in terms of the time of day. So if we just look at um, the last 30 days just for instance. So last 30 days, the price of the stocks mostly the same. This was SpaceX, so that's a little bit of an exception. Um, but we look at the time right here and all of a sudden, you know, we we see a bit of a different picture. By 30-minute increment, I'm actually doing really well before the 9:30 opening bell. I'm adding a little at 9:30 and lost a little there. That's probably just one bad trade. Um, but my trading has shifted to be earlier in the day. So now I want to walk you through how to actually trade during this pre-market session because a lot of platforms, including Schwab right here, don't make it easy. So right now at this moment, it's pre-market. So if I click buy market, that order's just going to sit there. It's a live order and it's not executing. It's not getting filled. It's just sitting there. I can press it 100 times and nothing will happen. I just have to sit here, you know, like a like an idiot waiting and then all of a sudden at the 9:30 opening bell, the orders will go through. So there's two issues here. Number one, you can't use market orders pre-market. So this is a market order and you cannot use that order type during pre-market trading. The second problem is that even if you click buy ask, which is the limit order, which is an order that does work pre-market, they still won't place it because you have your time in force set to day. You need to change it to extended hours. So all of a sudden I'm going to cancel this. I'm going to click it again. We'll just do for 10 shares, whatever. And we're going to click buy ask. Now I'm in. Awesome. But I can't press sell market. I have to press sell bid, right? Because market orders, buy market, doesn't work for this time of day. So thinkorswim is the least intuitive platform that I've ever seen, to be honest. And it's they created a little bit of a monster here. Uh there's people that love it, and that's awesome, but once you learn how to use thinkorswim, that those skills don't translate to any other platform. It's so unique to thinkorswim. But then you have platforms like WeBull, and WeBull's fairly straightforward. This is a little bit more typical. So, this is the WeBull platform. So, right here we've also got Ford, right? So, if I want to trade this, I got to go change my trading hours from regular to include extended hours. Because if I send this order right here, well, we'll do it for like one share, whatever. So, if I send this order right here, I got to enter my um code, and there we go. All right. So, this is uh oh, so we we were we had it just for the sake of argument. I put it like this, and that order's just going to sit there. It's just going to sit there and sit there and sit there, and nothing's going to happen. So, I have to change that from regular hours to include extended hours, and then my order can go through. Now, the nice thing with uh using WeBull, and this is the same with um Lightspeed. So, Lightspeed's the software that I use for trading right here. And with this software, it's kind of interesting because their day order works during pre-market. So, if I put in Ford, and I want to do, you know, one share, it's a day order, and it works pre-market, which is why back in 2019 or 2020, when I clicked the buy button, it went through. Because their time in force for day isn't it is the default. Market day would be the one that doesn't work until the bell rings. But that's not the default. So, so Lightspeed makes it very easy because the default works uh starting at 4:00 a.m. and all the way to 8:00 p.m. Now, on WeBull, if you went into your hot keys, you want to set up your hot keys for trading, which you certainly should if you're actively trading, um then what you can do is you can actually set your hot key, We'll just do um we'll do this one for buying 2,000 shares. So, as you set it, hot key shift two, you know, the number of shares you want to buy, 2,200, whatever it is, ask price, a 10 cent offset. So, this is a limit order. It's not a market order cuz they don't work pre-market. It's a limit order. So, limit to buy, and I use an offset 10 cents above the current price because when the market's moving quickly, it'll give me a little bit of room to get filled. The difference like when you send your order, it sometimes takes a second for the order to fill. And if the price of the stock changes during that second, then you won't get filled on your order. So, giving yourself a 10 cent offset means you've got an extra 10 cents of wiggle room for your order to get filled. Then your time in force, you change it to day instead of good till canceled, that's important. And then you change it to extended, yes. And now all of a sudden you've got a hot a hot key, and all you have to do is press shift one, and boom, you're sending an order. It's easy. That simplicity is what traders look for. And over on thinkorswim here, you don't have it. The only thing you could do with your hot keys is have a hot key to buy ask or to sell bid. And yes, you have to manually change this from day to extended each day. So, every time you're changing time of day, you've got to adjust this. So, change it to extended, and you can't create the offset. So, if you had a stock that was moving quickly, and you clicked buy ask, but the price kept going higher, every single one of your orders might not fill. In which case, you just had the right idea on a stock, it made the move, and you didn't get filled because the software is holding you back. This software isn't empowering you to get in and get out quickly. The software, to be honest, is only optimized for regular trading hours, which, yes, that worked, you know, 8 years ago, but now we're at a point where so much trading is occurring pre-market for logical reasons that by the time the bell rings at this point, the big move has already happened. The breaking news comes out here. Now, if companies decide for whatever reason that they're only going to put out news at 11:00 a.m., then you better believe I'm going to start trading at 10:45. That'll be the window I start trading. But that's not going to happen. At least I don't see any reason why it would happen because of these halt codes right here. So, they're going to continue to put out news in the pre-market after-hours session. And yes, sometimes we will have stocks that make a nice move pre-market, then they pull back a little bit, and then they rally up later in the day and squeeze into the close, and that's all fine. There's, you know, you could trade that if you'd like, but typically right now what we're seeing are that the big moves are occurring when the companies are putting out those breaking news headlines, and that's in the pre-market session and the after-hours session. So, if you're not trading in those sessions, either because you didn't know how to, which you can't say after listening to to this, uh or because the software you're using doesn't empower you to be able to do it, then that's something you got to go back and and really think about. Now, so what I've been doing for um my small account challenge with uh with Charles Schwab is I don't actually execute my orders using the thinkorswim platform. I use thinkorswim just for monitoring my trades, so I can monitor the progress that I've made, but I'm not actually executing my orders there. So, what am I doing to execute the orders? Well, we go back down here. Where was it? Um So, let's see. Let me scroll back up. I had a couple different episodes that I taught you guys on this. So, I'm using a third-party platform called DAS Trader. Where was that? Uh here it is. So, this is what DAS Trader looks like. DAS Trader looks actually a lot more similar to Lightspeed. It looks fairly similar to Webull. A little bit different, but pretty similar. And this allows you to actually set up your hot keys, to set up limit orders, to set up your offsets. And so you can play you can create the type the exact type of orders you need for trading pre-market. So if you wanted to use DAS Trader with uh Charles Schwab, the only downside is it costs an extra $150 a month because you have to go over to dastrader.com and sign up uh directly with them. Now, this episode, this um class right here, this is not an endorsement, um you know, I'm not an affiliate of any broker or any um of these trading platforms. But this is the software that um that a lot active traders are using if you're kind of hung up on sticking with Charles Schwab. So you come on over here and then you choose which subscription level you want. $200 a month is their most expensive. They've got $175, $150, $120, $100. I'm using the one that's $150. And so you pay for it, it's a monthly subscription. And you know what? At the end of the day, you still benefit from commission-free trading with Schwab, but now you've unlocked the ability to actually consistently and aggressively trade during the pre-market session, which is, you know, kind of what you want to be able to do, right? So now you can get in and get out quickly. So my trades here from today, this is day 15 of my small account challenge with Schwab, and I'm up $2,943.22 as you can see right there. So a solid green day, and that brings my total equity in this account to over $20,000 from a $2,000 starting balance. I wouldn't have been able to trade like this if I wasn't number one trading pre-market, and I wouldn't have been able to trade if I wasn't using the software here on the front end to execute those trades that allows me to trade using more sophisticated hot keys, limit orders with offsets. So, I hope this has been an eye-opening episode for you guys about pre-market trading and I'll put links to a couple other episodes I think you might enjoy right here and right here. And I'll remind you guys as always that trading is risky and my results aren't typical. So, please take it slow and always practice in the simulator before putting real money on the line.