Pre-/After Market trades

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We’ve seen a flurry of after-market and pre-market trades regarding ANET. My comments are not ANET specific. Rather, I wanted to share a few observations gleaned over the years:

Trades outside of open market times are tricksy for a number of reasons. First, the trading volume may be minuscule (I’m talkin’ about fewer than 100 shares traded). I’ve seen it happen often. What I’ve also seen is that some off-hour trade leads to a significant change in price. Investment boards such as StockTwits light up with hyperventilations about the stock. Could be glee, could be panic, but such commentary makes waves. What to do? FIRST, check the actual stats. A number of sites post off-hour trade data. I prefer Nasdaq.com. The off-hour trades are posted in detail, noting both off-hour highs and lows. All too often, I’ll see a significant price change only to learn that a trade of 100 shares was the reason. Best to just ignore.

Sometimes, though, the number of shares traded is significant. There may, in fact, be a significant downturn on heavy volume. What to do? A great many traders would suggest following the “Three Day Rule.” Tune into CNBC and you’ll hear the term often. Here’s how folks at The Street describe it:

Day 1: The smart, big money sells.

Day 2: The semi-smart, kinda big money sells (like … at 9:30 a.m. ET) because they see what happened yesterday and realize that it’s prudent to lighten up.

Day 3: The not-so-smart, small money sells because … they’ve been watching the carnage over the past two days and have been largely frozen. And after two days of declines, they can’t take it anymore. So they sell! Note that this Day 3 dumb-money selling can often occur at the end of Day 2…

On the flip side, if a stock surprises to the upside, I prefer to wait until the market opens the next day. Why? Because price discovery in off-hours can be wildly affected by liquidity problems. If I’m sure I want shares of a surging company, I’ll put in a trade about a half-hour into the trading day. More often than not it will be a limit order.

I prefer to let dust settle before I go charging in.

Hope someone found this helpful.

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Good advice Putnid.

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Agreed, should never be in rush to chase something especially when it’s heading south.

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For anyone not familiar with premarket or after hours trading, Putnid’s comment here was gold:

Trades outside of open market times are tricksy for a number of reasons. First, the trading volume may be minuscule (I’m talkin’ about fewer than 100 shares traded). I’ve seen it happen often. What I’ve also seen is that some off-hour trade leads to a significant change in price. Investment boards such as StockTwits light up with hyperventilations about the stock. Could be glee, could be panic, but such commentary makes waves. What to do? FIRST, check the actual stats. A number of sites post off-hour trade data. I prefer Nasdaq.com. The off-hour trades are posted in detail, noting both off-hour highs and lows. All too often, I’ll see a significant price change only to learn that a trade of 100 shares was the reason.

Bear

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All too often, I’ll see a significant price change only to learn that a trade of 100 shares was the reason.

My Lightspeed Trading screen shows me the volume. To trade after hours one MUST use limit orders or you can be taken for a ride you’ll regret. The bid-ask spreads can be huge, $1 bid, $1,000 asked. It’s the bots’ default when there are no real bids. I might trade pre-market once or twice a year if at all.

Denny Schlesinger

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Putnid is right, after hour prices can be very “wrong”. For people looking at charts, the $260 area was getting close to the 50dma, which is a good test of support. It might have been wise to wait for the real market to see what happened there. A strong show of support and a higher price would have a better probability of success than grabbing a falling knife. As we see now, the 50dma did not hold AND the stock finished at the bottom of its range at $249. Likely to follow the 3-day rule with more selling tomorrow.

http://stockcharts.com/freecharts/gallery.html?anet

P.