- Clear Market Direction: By focusing on the premarket break and confirmation after 10:30, you’re identifying clear directional moves with higher probability.
- Liquidity & Volume: Stocks that gap up are often driven by news, earnings, or significant events. These tend to have increased volume, which gives you a clearer signal to follow.
- Scalability: This strategy can be adapted to different stocks or sectors and works well for intraday trading (scalping or day trading) with short-term price movements.
- Avoiding Fakeouts: You wait for confirmation after initial volatility, which helps you avoid trading on false breakouts.
Example:
- Premarket high = $102
- 9:30 price = $101
- Price breaks $102 at 9:45, holds above VWAP, consolidates
- At 10:35, price breaks $103 (the 10:30 high)
Entry = $103.10 (on breakout)
Stop = $102.40 (below VWAP)