The trading day does not just begin at the opening bell. Ask any successful trader and you’ll discover he has a routine leading up to the trading day that is nearly as important as what goes on during set trading hours. Preparation is the key to many things in life, and trading is no exception. In this chapter, we’ll cover premarket preparation and analysis, which includes a review of the closing patterns from the prior session and a look at the premarket news and resulting price action.
■ Analyzing Patterns from Previous Trading Day
Proper premarket preparation always starts with analyzing the closing patterns of interest from the prior session for possible strong “setups” for the next day trade. This should be done after the close of the prior session (or during that evening) before the next session begins. My strong suggestion is that you do your work when it’s fresh in your mind and prepare your watch lists before the next day, when you should be monitoring premarket news and price action for possible trading candidates. In any case, you are looking for key bullish price action with relatively higher volume than normal, hopefully on a significant price volume surge through a key technical resistance or support level or zone. You should be on the lookout for following bullish/bearish consolidations or orderly retracement patterns such as flags, wedges, coils, pennants, and so on.
The preceding patterns have distinctly different ...