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Pre-Open Market Strategy
The next strategy that we will learn is Pre-Open Market Strategy.
What is Pre open Market?
The pre-open market is the market window which is before the normal market timings. The duration of the pre-open market session is from 9:00 AM to 9:15 AM, i.e, 15 minutes before the trading session starts and is conducted on both the major Indian stock exchanges: NSE and BSE. It helps in stabilizing heavy volatility due to some major event or announcement that comes overnight before the market actually opens for trading.
Order Entry Session: From 9:00 AM to 9:08 AM (8 Minutes)
This session enables you to place an order to buy and sell stocks. Modify or cancel orders can be made. After these initial 8 minutes, no orders are accepted.
Order Matching Session: From 9:08 AM to 9:12 AM (4 Minutes)
This 4 minutes, the exchange takes for Order confirmation and order matching.
Calculating the opening price of stocks for the normal session is done during this session. During this time, one cannot buy, sell, cancel, or modify orders.
Buffer Session: From 9:12 AM to 9:15 AM (3 Minutes)
This is known as the Buffer Session. It facilitates the transition from pre-open to regular market session.
What is this strategy?
The pre-market open strategy is a strategy in which we identify stocks which have significant up or down moves during the pre-market opening session.
Stocks which have significant up or down moves, i.e., more than 1% during the pre-market opening session are filtered out for trading purposes during the normal trading session. It is assumed that the stocks which move more than 1% in either direction, will generally show momentum and trade positions can be initiated.
How to identify stocks using this strategy?
There are some screeners which we should use to identify stocks in the pre-market opening session:
- Choose stock from the F&O list. This is because mostly stocks listed on the derivative segment tend to be more volatile as outstanding positions are there, hence the chances of these stocks to be in momentum is higher.
- Volume traded should be at least 10,000 in the pre-market session.
- The price range of stocks that could be selected should be between ₹100 - ₹2000. Avoid stocks whose price is lower than ₹100 or higher than ₹2000.
- VIX should be above 20.
Once we get a stock list based on the above three criteria then on market opening the first 15 minute price action needs to be closely monitored. First 15 min Price range should be more than 1.3% of Avg instrument price (average is calculated by taking the high and low prices of the 1st 15 minute candle and divide it by 2)
If all the criteria are met, buy the stock when price crosses the high of the 1st 15 minute candle. An order, 5 paise above the high price, 1% stop loss and 1% target can be entered into the system after 9.30AM.
Similarly sell 5 paisa below the first 15 minutes candle low with 1% target & 1% stop loss.
No fresh trade is to be taken after 2 pm.
Trades which neither hit stop loss or target should be squared off at 3.10 p.m.
This is a very simple intraday trading strategy based on algorithms. Once all the criteria is met, the trader can simply put basket orders for all stocks in the list.