How to Prepare for the Market Open

08/27/2009 10:11 am EST

Focus: STRATEGIES

There are no “holy grails,” magic software, or short cuts to success in the stock market. You can look for short cuts by getting your buddy’s “watch list,” or logging into a chat room minutes before the market open to “follow” other traders, however, failing to spend the time to do your own market research will prevent you from developing as a self-directed trader and possibly lead to self-sabotage. The more prepared you are for each market day, the more relaxed, confident, and successful you will be. The opening bell then just becomes an “event” from which your planned strategies begin to unravel.

My daily market preparation for the following trading day begins 30 minutes prior to the closing bell of the current day. It is at this time (the last Pristine “Reversal Time”) that the Pristine-trained trader makes a final assessment of the broader markets and market internals to calculate a trading bias into the close. This is to (1) determine which, if any, current positions warrant holding overnight if they close as planned; (2) enter new swing trades; and (3) determine an “anticipated” morning bias on the assumption that the market will maintain its projected strength or weakness at the opening bell.

3:30 ET Reversal Time

1) Determine the likely continued direction for the four primary markets (DIA, SPY, QQQQ, and RUT) and major sectors (e.g., semiconductors, software, banking, Internet, housing, transports, and biotechs) based on technical analysis.

2) Determine if the market internals support that opinion.

3) Is there any major market news (economic or otherwise) or major earnings expected before market open? For example, jobs data or earnings data from bellwethers like GE, C, IBM, CSCO, GOOG, and INTC can move the entire market.

4) Do the stocks of interest and related sector(s) suggest continued direction?

Note that Pristine does not recommend holding non-core trading stocks over earnings, so we would advise making sure they are not reporting.

Market Close

1) Repeat analysis of 1 and 2 above based on closing prices. Mark off major support and resistance on the next day’s charts.

2) Monitor any market-moving news and watch the S&P and Nasdaq futures.

3) Perform detailed review of sectors and your trading universe (defined in your trading plan) to build a watch list of longs and shorts.

In a future issue, we will discuss what to do with your watch list, how to update your morning bias, and how to profitably trade the open!

By Avery Meizner of Pristine.com

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