How to Use Pre-Market Price Action and 1 Minute Chart to Find High Probability Trade Setups

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8/7/17 – Today in the trading room, the moderator mentioned TSN was a potential gap-and-go play. TSN had earnings this morning and gapped up over the $65 level. On the daily chart, you can see prior to today, the next potential stopping point was around $67, which is evident by the two spikes at the beginning of February and end of April.

Watching the pre-market price action on the 5 minute bar chart, you can see the prices bounced between $65 and $65.5. Right before the market opened, prices closed near the high of the pre-market session (see circled bar below). When stocks exhibit this type of price action before the market opens, there is a good chance the stock will run in the direction of the gap within the first few minutes of the regular market hours. An aggressive way to play this would be to take the trade at the break above the pre-market high. A more conservative way to play this price action is to wait for confirmation on the 1 minute bar chart.

On the 1 minute bar chart, we are looking for a pullback after the initial run. Ideally, the pullback will be created by at least 3 bars, where there are at least 2 lower highs and 2 lower lows. The bar circled below is the “trigger” bar. In addition, what makes this particular play more attractive is the low of the trigger bar was only a few cents away from the high of the pre-market high. Therefore, the pre-market high was acting as support for this price movement. The play is to go long at the break of the high of that bar. The entry was about $65.8, the target was $67 (found by looking at the daily chart), and the stop was about $65.2, which created a 2:1 reward-risk ratio.

 

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