Pre-Market Preparation: Levels, News and a Game Plan
Build a level map, measure gaps in ATR units and relative volume, check the session's news times, and write if-then scenarios before the open.
What you will learn
- Which price levels belong on an intraday level map.
- How to measure a gap in percent and in ATR units.
- How to calculate relative volume to find instruments that are "in play".
- How to write a short if-then game plan with a no-trade condition.
Explanation
A weekly macro routine and a general daily routine were covered in the courses "Macro" and "Trading Psychology". This lesson is the intraday version: a 30–45 minute checklist that turns the overnight information into a concrete plan for today.
The level map
A level is a price where many traders are likely to react. For intraday trading the most useful levels are objective, so that you do not have to guess:
- Prior day high and low (PDH, PDL): the extremes of yesterday's session.
- Prior close: the last price of yesterday's regular session; it is the reference for today's gap.
- Pre-market or overnight high and low: the extremes traded before the regular session, for example in pre-market trading of shares or in the overnight session of index futures.
- Higher-timeframe levels: one or two clear daily support or resistance zones nearby. Do not draw more than you can watch.
Measuring the gap
A gap is the difference between today's expected opening price and the prior close.
Gap % = (indicated open − prior close) ÷ prior close × 100
Percent alone hides how unusual the gap is. Divide the gap by the ATR (average true range, the average daily movement, covered in the course "Technical Analysis"):
Gap in ATR = (indicated open − prior close) ÷ daily ATR
A gap of 0.3 ATR is ordinary noise; a gap above about 1 ATR means the market has already moved a full "normal day" before the open. Treat these thresholds as your own planning guide and check them on your data.
Relative volume
Relative volume (RVOL) compares activity now with normal activity at the same time of day:
RVOL = volume so far today ÷ average volume up to the same time on previous days
An RVOL of 1 is normal; 3 or more means unusual interest. An instrument with a large gap, high RVOL and a clear reason (for example company results) is called in play. In-play instruments tend to move more, which helps your spread-to-range ratio, but they can also have wider spreads in the first minutes.
News check
Write down the exact times of scheduled reports that affect your instrument: company reports, central bank decisions and major economic data. Many US economic reports are released at 8:30 New York time. That is normally 14:30 German time, but 13:30 during the few weeks in March and in October/November when the US and Europe change clocks on different dates. Always check times in your economic calendar.
The game plan
A game plan is a short list of if-then scenarios: "If price does X at level Y, then I consider setup Z with stop S." It also contains a no-trade condition: a situation in which you stay flat. Writing it before the open reduces impulsive decisions.
Worked example
Hypothetical example: share XYZ. Prior close €50.00, prior day high €50.80, prior day low €49.20. After company results, the pre-market indication is €52.00, pre-market high €52.40, pre-market low €51.50. Daily ATR(14) is €1.20. Pre-market volume so far is 60,000 shares; the average at this time is 15,000. Risk budget €80. Fees and taxes excluded.
- Gap: (52.00 − 50.00) ÷ 50.00 × 100 = 4.0%.
- Gap in ATR: €2.00 ÷ €1.20 = 1.67 ATR, a large gap.
- RVOL: 60,000 ÷ 15,000 = 4.0, clearly unusual interest. XYZ is in play.
- Level map from top to bottom: €52.40 (pre-market high), €51.50 (pre-market low), €50.80 (PDH), €50.00 (prior close), €49.20 (PDL).
Written game plan:
- Plan A: if XYZ holds above €51.50 during the first 15 minutes and then trades above €52.40, consider a long trade; stop below the 15-minute low; risk €80.
- Plan B: if XYZ falls below €51.50, do not buy; watch for a move towards €50.80, the prior high.
- No trade: if the spread is above €0.05 after 10 minutes, or if the results contain unclear one-off items, stay flat.
Common mistake
Practice activity
On paper: share ABC closed at €80.00 yesterday. After a profit warning it is indicated at €77.60. Daily ATR(14) is €1.60. Pre-market volume is 45,000 shares against an average of 9,000 at this time. Calculate gap %, gap in ATR and RVOL, and write one Plan A, one Plan B and one no-trade condition.
Show solution
Gap: (77.60 − 80.00) ÷ 80.00 × 100 = −3.0%. Gap in ATR: −€2.40 ÷ €1.60 = −1.5 ATR. RVOL: 45,000 ÷ 9,000 = 5.0. ABC is in play to the downside.
Sample plan: Plan A: if ABC stays below the pre-market high after 15 minutes and breaks the pre-market low, consider a short trade with a stop above the 15-minute high (only if your broker allows short selling of this share). Plan B: if ABC trades back above the pre-market high, no short; watch the prior close at €80.00. No trade: spread above your limit or a trading halt.
Limitations: pre-market prices can be based on thin trading and may not reflect the opening auction price.
Key takeaways
- Use objective levels: prior day high and low, prior close, pre-market high and low.
- Measure gaps in ATR, not only in percent.
- RVOL = today's volume so far ÷ average volume to the same time; 3 or more signals unusual interest.
- Write if-then scenarios and one no-trade condition before the open.
Next step
In the next lesson, you will choose intraday chart timeframes and learn how a session is structured from the opening auction to the close.
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