The #1 Reason to Avoid Morning Trading — and What to Do Instead

by | Jan 20, 2022 | Trading Lessons

Key Takeaways

  • How to go from morning fakeouts to real setups — example included…
  • Stocks can prove themselves — see the top (super simple) way to track the action.
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Hey. Matt here.

The best traders learn to scope out opportunities in every market. That includes the wonky ones, like what we’re seeing right now.

Get used to it. Lately, I’m acting on advice from Tim Bohen these days — and it’s saved me from a lot of heartache…

No trading in the mornings!

  1. This isn’t Bohen’s advice to a T … He usually says to wait until 9:45 a.m. to jump into trades. That lets some of the market-open mania shake out. 

But what if you wait even longer for setups to prove themselves? In this market, it makes a lot of sense.

How long should you wait? I’m finding great setups in the afternoon. Let’s break it all down…

The Morning Setup Fakeout

Remember the panic dip buy? Good times…

Patterns don’t last forever. They come and go. It feels like the panic dip buy is fading out of favor.

Bryce and I talked about this recently on Small Cap Recap…

With the lack of volume, it’s hard to find conviction in early-day plays. Patterns just aren’t developing the way we expect. It’s leading to a lot of choppiness. 

This also makes it difficult to go short. You generally want the stock you’re shorting to be up a good amount before you pull the trigger…

The panic dip buy pattern has dried up because now everyone buys the dip … If there’s no true panic selling, you never get a clean bottom and the pattern never fully develops.

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Again, this leads to choppiness. But throughout the day, stronger patterns can emerge…

Real Setups Prove Themselves All Day Long

I’m over the morning fakeouts. So I’ve been trying something new — I rarely check my scanners before 12 p.m. Eastern these days…

Plays that fail in the mornings can strengthen throughout the day.

We saw a great example of this on January 12 with electroCore, Inc. (NASDAQ: ECOR).

electroCore, Inc. (NASDAQ: ECOR) on January 12 (Source: StocksToTrade)

The stock had a fine morning but not a ton of volume … It was kinda just hanging out.

But once it broke the previous high of day (HOD), the volume came in and pushed the stock higher for a massive gain — holding most of it through the close.

That’s just one example, but plays like this are common in this market. They may move slowly — or not at all — in the morning. 

But once they prove to have some stability and support, they have a chance of running big. 

Conclusion

Remember in the hot market when we all could jump into trades at the opening bell and make a bunch of money? There’s nothing like a hot market.

Things will come around again, but until then know what’s working for you.

In this market, I’ve found more success in letting charts develop throughout the day.

Once the afternoon rolls around, the real patterns start to form. Those are the setups I want to trade.

There may be a solid morning play here and there. But for now, I’m saving my time and attention for the afternoons.

Stay on course,

Matt Monaco

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