14 Jul

How I Used Pre Market Momentum To Pull Down 40%!

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If you want to make money in this market then you can’t be afraid to take your shot when you see it. 

And that’s exactly what I did yesterday when I knocked down a 40% profit on my trade of the day.

I’m not saying that to brag… not at all. 

The reason why I’m bringing it up is because I believe the setup is repeatable…

…one that if you study…could potentially churn out profits your way. 

It all starts in the pre-market, hours before a single trade is placed. 

 

Daily Deposits

 

Daily Deposits is a trading strategy based around determining the strength of the markets using a blend of technical analysis and premarket momentum data.

My edge in these markets come from where the algo’s can’t research or trade because of a lack of liquidity.

And that’s exactly why I focus on the pre market trading session each and every day.

It’s important to remember that algos can’t feel or understand the market price action outside of the liquid trading session of 9:30 am – 4:00 pm.

Why?

Because of the lack of trading and liquidity means erratic and even random prices can occur. 

And if a computer analyses that data, it could end up bankrupting firms with its unknown behavior.

Which is why no firm wants that type of risk and most if not all of the algos are turned off!  It’s just not a good time for a computer to be trading the markets!

 

Pre Market Momentum Analysis

 

By starting before the market opens it allows me to get ahead of the algos that turn on at 9:30am!

So, where do I start? 

I review the global markets from the top to bottom!  I start with what’s happening in the Asian markets, European markets and then the U.S. premarkets on the e-mini futures.

It’s important that I do this to understand what traders are doing in those markets… any fear or uncertainty will cause a huge impact to the US markets if there is anything major happening… 

This is what alerted me to the severity of the Coronoavirus coming out of China in February (and yes, I bought puts that day at the open!)

Let’s break down what happens every hour before the market opens for you to understand how my flow works.  

 

Hourly Breakdown

 

7:00am:

I started my scan of the world markets.

These markets include:

  • Foreign Exchange
  • Economic Data
  • Commonities
  • Asian markets

Then I continue to watch the markets for volume, earnings, fed announcements, and any signals coming from the central banks with monetary policy changes.

These are all critical pieces of information the markets will signal to you in the pre market session that will cause the price of the stocks to dive at the open.

Next up… the Trade of the Day.

9:05am:

I send a Trade of the Day alert signaling the direction I believe the markets are going to head in at the open.

The Trade of the Day includes:

  • The option contract (put or call) to trade
  • The specific week or month
  • The specific strike price
  • The entry price of the trade
  • The stop loss of the trade
  • The profit targets of the trade.  

Why do I start looking for trades at 9:05am instead of waiting for 9:30am?

I do this to get ahead of the markets and try to anticipate where the price will move in order to stay ahead of what is happening.

 

Fundamentals Help Determine The Direction

 

It might seem odd that a day trader would care about the macro market signals around him…

But in fact, fundamental information could be one of the best analytic tools any trader can leverage when it comes to understanding the core of the markets.

Let’s take a look at what I use to get ahead of the markets every day.

3 Key Fundamentals Factors To Watch:

  1. Macro Indicators 
    • Currencies – Equities have an inverse relationship to the Japanese Yen
    • Bonds – Equities have an inverse relationship to bonds
  2. Market Sentiment 
    • US futures markets
    • Overseas futures markets
    • Commodities – Oil, gold, copper, etc
  3. Momentum Indicators + Overall Trend
    • 10 and 20 SMA
    • TTM Squeeze
    • 5 min, 10m, 15m charts

So how does this break down?

If we see a sentiment at the open that is extremely strong, it’s saying that the buyers are in control and the markets should continue their upwards trend. And the inverse occurs for weak markets as well.

 

A Sample Trade

 

Let’s break down how I use the pre market analysis every morning to make my trading decisions.  

I review the global markets from the top to bottom!  I start with what’s happening in the Asian markets, European markets and then the U.S. premarkets on the e-mini futures.

It’s important that I do this to understand what traders are doing in those markets… any fear or uncertainty will cause a huge impact to the US markets if there is anything major happening… 

 

Global Outlook

 

First, I start with reviewing the global outlook to determine the trend coming into the US market open.

The importance of reviewing global markets is that there is a high chance the trends that are going on around the world will bleed over into the US markets.  

 

Source: Finviz

 

And as you can tell right away the market is a bit mixed throughout the world.  Some markets are up while other major markets are red.  

After careful review of the work markets, I concluded that we should see some upward momentum in the markets right out of the gates.  

But before placing a trade it’s best to break down what I am looking for in the markets.

 

Pre Market Analysis

 

When analyzing the premarket session there are two primary things you want to reference when determining the trend of the markets.

The pre market trend signals are:

  1. The overall trend is positive throughout the post market and pre market trading session
  2. Support was held around 5 am, signaling buyers are maintaining control of the stock as it’s driven higher with the open of the US pre markets.
  3. The 10 MA is over the 20 MA, signaling short term momentum going the open
  4. The TTM Squeeze is still active with increasing momentum

Here’s a sample chart of the pre market trends and patterns that I saw that signaled the trend was looking to head higher.

 

Source: Thinkorswim

 

In this case, there are many supporting indicators that are pointing to an impressively strong market heading into the open.  

So when this occurs – chances are the market is going to become a gap and go setup but it’s hard to tell.   

Which it’s extremely important to keep your Audible Trade Of the Day order ready at all times – you never know when you might need it!

 

Trade of the Day

 

After careful analysis of the pre market momentum indicators I determine that I want to trade the markets to the long side.  

At this point I am aggressive with my trade and expecting a gap and possibly a go setup to play out.

And this is what my members received from me in the morning before the markets opened

Today’s Trade Alert:

 

Today’s Trade of The Day is SPY July 17 325 CALLS

————————————————————————-

Audible Trade of The Day is SPY July 17 315 PUTS

 

Resistance: 320.20, 320.32, 320.51

Support: 320, 319.93, 319.75

Talk about a solid trade!  

With this trade I was able to pull down a solid win of 40% profits from those options!

 

Source: Thinkorswim

 

Wrapping Up

 

Remember, a single indicator cannot predict the markets… but a well thought out strategy can put the odds in your favor to win more than you lose!

And once you combine multiple indicators, market sentiment and other fundamental factors you have stacked the odds in your favor to beat the algos!

This is just a single example of the power this analysis gives you that goes into each and every trade.  

Don’t worry – there are plenty more technical analysis tools that are used for trading different market conditions.  

Click here to subscribe and watch as I put these tools to work in my Daily Deposits trading each morning!

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