Pros and cons of pre-market trading

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• 0:00Speaker 00

  Hey everybody, I'm Michael Martin. Thank you very much for being here. You know, half the folks who watch the channel, about 48%, aren't subscribed. So, if you're new here and you like what you see, please like and subscribe. Gives me good data as to the type of content that resonates with you, so I'm not just here talking smack into a microphone all the time and just blathering on. I like to create content that really resonates with the audience, and if you read the comments, that mostly is the case. And that's because I get good feedback from the comments and emails and the data that YouTube can give me. Anyway, today I want to talk about, you know, pre and post-market trading. I get a lot of questions about that, like, "Can you find an edge?" And the answer is, absolutely you can.

• 0:44Speaker 00

  And I trade a lot of times outside of what you would consider outcry hours, or, well, we don't, we call it outcry, there's really no outcry anymore. But in futures, they used to have an outcry market, and there really wasn't an electronic version of it. There was, you know, Globex and Access A and this and that. But that market has evolved quite a bit to provide liquidity. Those markets have evolved quite a bit to provide liquidity for people. You know, before, say, the opening bell, which, like I said, would typically be, or what we call normal trading hours, at least for stocks, being 9:30 Eastern to, say, 4:00 PM Eastern. You know, commodity markets, they have very different hours and different schedules.

• 1:28Speaker 00

  They have different number of hours that they're open. Some are only open for a few hours. Some open very, very early and close early. Moving to California, that was a big benefit for me, I was always up early anyway. But, you know, for example, cocoa would open when they was, back in the days of the Coffee Sugar Cocoa Exchange in New York, it would open at 8 o'clock. In California, that's 5:00 AM. Now, I don't know about you, but I'm not exactly sharp at 5:00 in the morning to be managing risk in a cocoa market that has no daily limit moves.

• 2:09Speaker 00

  So you really have to be sharp, in my opinion, to trade the softs, and it's mandatory to me, anyway, that you have phenomenal understanding of the fundamentals of the market, because they're normally dominated by professionals who are actually in the physical business. So you show up to a fight that you're unprepared for. It's like, if you're a weightlifter at a gym and you start to think that because you're a weightlifter and you're strong, that you could take anybody in a fight, and you meet a 150-pound black belt in jiu-jitsu, and you get tied up like a pretzel without the dipping sauce. So, I use the pre-market as a leading indicator. What do I mean by that?

• 2:54Speaker 00

  And I show this a lot in the mastermind with, you know, old-school confirmations that we used to get in PDF format that would be emailed to us at the end of the day, and it would show, like, pre-market, after-market, overnight executions. That's what Man called them, I cleared through a company called EDNF Man forever. And the confirmations would come and say, you know, "Night executed." And the way I used it tactically is this: if there was a move underway, say, in gold, copper, anything like that, crude oil, I'd want to see follow-through, just like you. And the benefit of futures is that they're global markets, like, gold is gold, right?

• 3:37Speaker 00

  It doesn't change its composition in Europe, right? In terms of purity, it's generally the same. Same thing in Tokyo or Hong Kong. Same thing in Sydney. So, if there was a move underway, what a lot of the sophisticated traders might do is, they might try to arbitrage, or they could even create spreads. So what I would do is, because I was in California, and it was still kind of earlier in the evening, right, when it was morning in other jurisdictions where markets were opening, and they could

• 4:14Speaker 00

  trade local gold in their market, the overnight New York COMEX gold would trade in sympathy, right, because it's all one big gold market. So I would look for follow-through. I'd have COMEX gold on my books, and I would see, and I'm talking, I don't know, 9:00 PM to midnight, 9, 10, 11, 12:00 PM. I would have my position, and it normally wasn't that big that I couldn't move at least part of it. And if I noticed, like, we had three, four, five days in a row, and the market was ripping, right, I don't know what the young people call it anymore.

• 4:57Speaker 00

  I would look for that continuity, because I always had protective stops in. So then if one particular night, the market started giving back some, even though it might have closed, right, in the US, up, or still in the defined uptrend, I would look to see how it was going to open the next day, and if there was going to be continued follow-through. And if the market opened weak overseas, it would absolutely start to be reflected electronically in the gold market here, even though it was electronic and that everybody was asleep, right, because it was midnight or later in New York.

• 5:39Speaker 00

  So I very often times would sell at least half or perhaps my entire position and get out, knowing that, like, that could be the beginning of the retracement, or the end of the move, excuse me. And I can't tell you how many times that really saved me. Now, in those examples that I'm thinking about, you know, gold might have been trading, like, 500, 600 bucks the ounce, could be 20 years ago. But I still do this today. I'm just making a point from a time when I was a lot more active, and there were, there

• 6:21Speaker 00

  were times when I would sell, I'd find gold would be down, say, 5 or 10 dollars, which is 1% to 2%. You know, and even back then, you know, so when you look at volatility as a percentage of the price, you know, a 2% move in anything is a pretty decent move. You know, depending on your position size, I was trading much more aggressively back then, so it mattered for me. And what ended up happening is, say, it was 10, 11, 12 o'clock at night, I might call the desk and say, "Just puke me out of all my gold across the board," right?

• 7:00Speaker 00

  I'd wake up at, like, 5:00, 5:30 the next morning, and I'd wake up and I'd see gold that could be down 10, 20 bucks, right? And so I improved my exits by keeping my ear to the floor and listening for, you know, the heartbeat of that market. These days, with, now, the converse is true today, when I might be flat and looking at certain markets, and seeing that they're oversold, for example, in the way that I measure that, I might not be able to get in during the day, because the market seems oversold

• 7:45Speaker 00

  and there's no, there's no firm bids. And there might not be a deluge of selling, but no one's showing up to buy. So I sit and watch, I set some alerts, but when it gets to be, like I say, I'll come in from jiu-jitsu class and, you know, take a look at some things before I go to bed, I might notice that there's a little bit of a bounce in gold or silver, or crude oil, for example. Or it could be the euro, could be 10-year notes, could be NQ. And I feel that it gives me a geographical advantage to be able to see things, again,

• 8:30Speaker 00

  9:00 PM to 12:00 midnight, and see how things are operating, and are people in other jurisdictions seeing that there could be value. Commodities don't have value the way stocks do, and remember, I don't even believe in that bullshit either.

• 8:48Speaker 00

  You know, lower prices just mean lower market cap to me. I don't see things in terms of value, right? That's to me an investor trap. And we don't, as traders, want to use investor language when we're trying to trade and manage risk. So when I hear people talk in value, I'm like, ah, they're in a position that's down and they're trying to justify why they're still in it. And I've been there a million times. That's how I know this stuff. So I just try to not make those same mistakes. Hopefully, I'm learning myself here. I should watch my own channel, for God's sakes. So I found that there's a bit of a tactical advantage because I'm in a geography that allows me to kind of see things earlier, not because I'm necessarily smarter, I have

• 9:30Speaker 00

  greater insight, but because I can take advantage of the time changes from where I am. And so wherever jurisdiction you're in, you might be able to see that too. And so in this case, if the market looks like it's turning back up after it's consolidated or it's sold off a little bit in a move that I had been in and I had gotten stopped out of, I'll oftentimes rejoin the market. And what I can do is I can call the floor and put in orders to buy. I can set alerts. I can call in an order and buy a little bit and then give it a protective stop. And then very pleasantly find out the following morning when I wake up and get back to the

• 10:11Speaker 00

  desk that, in fact, was the low moment or the lower range, if you will, of that sell-off. And now the buyers are coming back and the trend is resuming. So as far as stocks are concerned, I would be a little bit careful because I don't find that the stock market, there's ample liquidity. And you might see things going on in the pre-market where people are kind of paring out of positions because they have to. So I have found the dynamic to be slightly different for stocks. I know it's popular, and I don't want to mention any names, where there are certain

• 10:54Speaker 00

  professionals out there that do studies of lower-capitalized stocks and what they're doing in the pre-market and this and that. And that's kind of how they come up with their strategy. I think that's amazing. It absolutely works. I vouch for it. It's legit. But it takes a while to develop a market feel for rug pulls. And in those markets, especially ones where there's no options attached to the stocks, those markets then become risk on, risk off because now there's just one way to get the alpha exposure. It's like you have to buy the stock, you don't have to buy the stock. There's no other way to lay off your risk. You can't sell calls, you can't buy calls, you can't do anything with puts because they don't exist.

• 11:39Speaker 00

  And sometimes if they do, you'll look and say, okay, the at-the-money call has open interest of 25. So again, there's no options trades there. You can't do anything. So if you're going to do pre-market things or after-market types of plays with stocks, I would start doing a small fraction of what your normal risk unit might be, right? Because the goal here is to not lose, right? We want to make money, but you have to remember as a speculator, you could be hell-bent for election in wanting to speculate. Your number one job is to learn how to play superior defense.

• 12:18Speaker 00

  And in my opinion, which is all it is, fear and greed show up mostly in position sizing. Impulsiveness and FOMO to me more show up in buying and selling at the market, right? I can't take the pain of not being in something that everybody else is making money in, so just get me in, I don't care what I have to pay. Whereas our fear and greed really show up in position sizing. So I would, I would say, not that you're fearful or greedy, what you're trying to do is trying to say, is there a tactical advantage that I can learn to deploy by participating in pre-market or post-market trading? And I think you can.

• 13:01Speaker 00

  Some of the bigger players can't play in that market because there's no depth, right? And so you might have a tactical advantage, right? If you're a pro poker player and you go into Atlantic City or whatever, or a home cash game, everyone that you're trading against could be donkeys. And so don't be the donkey in as much that if you put on too much risk, you could see the markets move very, very sharply against you. And some of these names also have these circuit breakers where you're trapped in your position. So that's why I'm saying, check it out, but do it hyper-conservatively, just to get a feel, right?

• 13:43Speaker 00

  Because you're going to make mistakes and you're going to have to learn about a market that, yes, is part of the overall market, but because of the nature that it's not outcry or normal, I keep saying outcry, that's just a language that I learned growing up, normal trading hours, there's probably a different vibe that you're going to have to learn. So you can do it, you could learn it. Of course, I'm not your financial advisor, so you have to hold me harmless by listening to this channel. I'm just giving you the heads up of the things that I've seen and experienced myself. I've bought stocks after they've reported earnings. I typically don't buy things in advance of the earnings, hoping that, like, yeah, I

• 14:26Speaker 00

  got a feel, I think they're going to beat by two cents. People who say that don't know their backside from a hole in the ground. They're just talking smack, any more than they think that, you know, their favorite team is going to win the World Series or the Super Bowl or this and that, or the NBA championship. It's dangerous to go on hunches when you're trying to run money. Yeah, if you have 20 years' experience and millions of observations, that's a different story. But if you're just starting out, you don't have enough experience to go on hunches. I've spent the time, you know, looking at things, waiting for the numbers to come out to kind of know for sure that at least they printed a good number.

• 15:09Speaker 00

  But even that doesn't give you a sense of security, right? So the things that I've done, like I've bought within the past five years enough Nvidia, you know, to endow, you know, college endowments from here to Florida, after they reported and paying up, right? Because I'd rather pay up knowing for sure that the number was a good print than to try to guess beforehand and have them disappoint. Well, you're like, Michael, that's stupid, you know, dah, dah, dah. And you're like, yeah, but you might have a better skill than me. I look at Micron.

• 15:47Speaker 00

  Micron MU printed outstanding fundamental numbers their last earnings report a couple weeks ago, and the market ripped overnight. And then from that point on, it did nothing but sell off, whatever, 15-plus percent. So, you know, it's life on life's terms. Even though things go good, the stock could get punished. Yes, it did have a, whatever, 150% run up to the point of earnings announcements, but you just don't know, you know, when you're looking at these types of things, what was that number? Is this? No, that's SanDisk. Let me just give you an example. Might as well talk about the specifics.

• 16:32Speaker 00

  So the earnings came in, the street was looking for $9.19. They printed $25.11, beating by 173%. That's outstanding by any measurement. Revenue-wise, they did 2X. The street was looking for about $20 billion. They did $41.5 billion. So they crushed it on both sides. And since then, so that was Wednesday, June 24th. The Thursday bar includes Wednesday night, so it ripped from, whatever, $1,055-ish to $1,228. And that would have been Thursday, June 25th.

• 17:13Speaker 00

  And then sold off 31% in three weeks, three trading weeks. So there's no guarantee that you could get the number right, you can get the direction or the ethos right and still lose money. So that's what I'm saying. You got to be careful. Your number one job is to protect your cash. So do that, you know, in a proper way by doing it conservatively. Then you can develop a better feel, maybe you can increase your size. But just remember that liquidity can dry up, you know, there because there's, not everyone's participating. And you might find yourself with a too-big position and everyone else is doing exactly,

• 17:58Speaker 00

  you know, they're selling into your length. And that's just the way it goes. And you could be down substantially before you have a chance to get out. So take your time, be careful. Anyway, thanks for being here. Please like and subscribe, and I'll see you tomorrow.