We find that on average pre-market trading contributes 36.68% to absolute daily price action in the sampled stocks.
The full research results and code used to generate them is available here: Momentum Trading with Pre-Market Trends
Pre-market and extended hours influence on the trading session is pretty fascinating area. Especially since with Morpher for the first time extended trading includes the night when prices are flat. Still on our list to explore is exactly how advantageous entering/exiting trades at night can really be.
For pre-market trends we actually saw 11 stocks that were perfectly correlated with pre-market price action on earnings days. And this is over the past five years, so not a huge sample size but still an interesting result.
Here's what my testing showed for pre-market trends:
- Pre-market price action plays a significant role in all sampled stocks and should not be ignored.
- On an aggregate level pre-market price action does not dictate intraday price action.
- Select stocks have shown historically to have a more indicative pre-market price action.
- During reporting periods stocks move with more volatility, however pre-market price action is only slightly more indicative than on a five-year historical level.
- In the case of select stocks, reporting periods can bring out indicative pre-market behavior.
- Specific stocks should be tested for larger time periods in order to assess the true predictability of pre-market price action, however some companies are too young to have enough reporting periods to analyze.