How good is the indication of premarket trading for the actual open on the S&P500? Does anyone have a link / study on this? Thanks.
If the S&P500 future is down 1% at 9:29 ET, how will the S&P open (adjusting for the disparity between future and cash)? In other words how good of an indication is the pre-market trade and how much of an effect does the first minute of trading have?
What are you hoping to accomplish? Reversion to yesterday's close? As you can see by today's action, futures trended lower pre-market and continued lower so it was a good indicator of the general movement for the day. Other days, it might not be the case. Practically speaking, the low volume pre-market is a sign of some earlier bets made by traders taking the initiative but the real volume after the open can be completely opposite.
I don`t think you will find any published studies on this, but since you have the questions yourself, you should be able to find the answers on your own as well, which is always better. If the market is down 1% at 9:29, we have a gap down open and a gap down open usually means something, just like a flat open means something. But you need more input as well, including prior days trading, etc. I definitely find the pre-market and overnight high and low important to guide my trading of the ES contract. A trend in the pre-market does not necessarily continue in the cash session though, so I don`t look into that as much, unless when I find that it is worth looking into.
I agree. I believe that you are a better trader for understanding the daily ranges especially for the indices. One thing I will add, there is so much premarket action nowadays whether in Asia or Europe, that it's quite common for the US markets to open off the prior day's close. I think gap plays are more significant if they are lower the prior days' low or higher than the prior days' high. Those gaps are much more tradeable.
I took the liberty of dividing this answer into 5 parts instead of 4. Each of these sections is hitting the nail on the head and opens up a world of study. The only thing I would add is that you will get more information if you look at the whole overnight trading as well as pre-market.
Pre=market for me is just one piece of the puzzle as there are many other pieces I look at before market opens. Trendlines on the dailies, 60 minute charts, divergences on higher timeframes, ema trend on yesterday's day session in relationship to 24-hour trend, and what the Notes are doing. So just going only by the Gap is no longer a good idea to trade off where pre-home computer it was. It might offer better plays in the options as I would think of high premuims to sell, but I no longer see it in ES.
I do consider the pre-market as the whole overnight session. Another thing with regards to gaps is that not all gaps are equal. For instance, a gap open outside yesterday`s range usually means something else than a gap open inside yesterday`s range. Size matters.
For Stocks, it may be relevant to look at the first 1-minute bar of the pre-market trading session and compare that to the first 1-minute bar of open trading hours. Scale with volume and you might get some data. The reason is that these are the on-market-open algos that usually trade momentum or reversion. A smaller number of them will be active at pre-market hours. If there is no volume spike it means they are mostly holding onto the same position as yesterday. It's not as simple though, you'll still need some statistics and do work on your own, but that's one broad idea I gave you.