Trading Techniques  |  JUL 2007

Premarket Prediction by Victoria Wang

Premarket Prediction by Victoria Wang Can premarket activity be a powerful predictor as to how underlying stocks will perform during regular market hours? Will this knowledge be advantageous to traders? Premarket activity refers to stocks that undergo active trading before the US market opens — that is, before 9:30 ET. This activity may be caused by earning announcements from either before the market opens or after yesterday’s close, upgrading or downgrading by analysts, or other news that may influence the stocks’ movement. After analyzing about a half-year’s data, we are beginning to uncover the connections between premarket activity and stock trends during regular trading hours. DATA COLLECTION The first step in the analysis is data collection. The premarket data was collected from the NASDAQ website from February 1, 2006, to July 31, 2006. We wrote a program that fetched the data from the website every morning around 9:25 ET. This data includes the current price before the market opens, yesterday’s closing price, and the premarket trading volume. Using this data, we were able to calculate the percentage change of the current price relative to yesterday’s close, referred to as percent change. We will discuss the effects of these data on the underlying stocks’ movements during regular trading hours. Trading activity involves entering a position at the open price and exiting the position at the close of the day; therefore, this is a daytrading system. For short positions, we are limited to stocks with a price above $6.

by Victoria Wang