A Day Trading Technique I Use Myself

Summer's here... time to dust off and fire up the old grill, slather yourself in sunscreen and squeeze into that bathing suit that somehow shrunk two sizes over the winter.
Although we've technically got several weeks before the calendar says so... it's here.

The kids are home from school, campgrounds around the country are booking out quickly and the stock market is about to go into a slumber... and perhaps fall out of bed.

The upside potential in the S&P 500 for the summer is pretty slim. In fact, we've been preparing for a healthy and long needed correction of 10 to 15% before the autumn begins (after the correction we could see a nice strong continuation of the bull market).

So, with that in mind, over the course of the past few weeks, we've covered an array of dividend paying stocks which can act as somewhat of a safe-haven in the event of the coming correction. But what do we do during these lazy crazy days of summer?

We are prepared for the worst, and that's great, but how do we take advantage of the low-volume, low opportunity months ahead? With some day trades of course. Imagine doing two trades a day, in-out-and-done before 11 am while sitting poolside? Sounds like summer to me!

Since day and swing trading is very time sensitive, we won't be sending trade recommendations to your email inbox. By the time you read it, it's already old and useless.

However, I will share with you a technique I personally use that has been my winning strategy in day and swing trades for years. In fact, I use the same strategy when investing for my mid and long-term portfolios.

So you can employ these tactics every morning, or whenever you feel like trading, and be done with your day before the pretty waitress brings you your club sandwich and diet soda.

It's all about the pre-market activity

Each morning around 8:30 am eastern time, I open my trading screen, visit several financial news sites and have a look at all pre-market activity. I'm specifically looking for stocks that are up 15% or more in pre-market... or are down 15%+ in pre-market

Once I find these (and there's usually a few of them every morning), I'll go to the stock's chart and news feed. What I'm looking for is the following:

• News that is moving the stock. As long as it's not a buyout offer, the stock will most likely be tradable. If there's no news out and the pre-market is up or down 15% or more, I stay away.

• A chart that shows movement the day before. You want to see a chart showing the last hour or two of the previous session had the stock ripping either up or down, the same direction as the pre-market activity. This shows us that there are people already in the stock on the news before we make our position. (important)

Now that we've found our two or three stocks that are up, or down 15%+ in pre-market, with news out that is not a buyout offer and a chart that shows people getting in or fleeing in the last two hours of the previous session... we have our potential winners.

This is where we do the exact opposite of what our good-sense tells us. We will short sell the stocks that are up big in pre-market, and we will go long the stocks that are getting crushed pre-market. Why?

Those charts we looked at? If they show people rushing in, or rushing out of a stock in the previous session, that means there are folks already nicely in the money on those positions. The stocks that are up significantly in pre-market have shareholders who are likely to sell within an hour of the open to lock up their gains. These are stocks we want to short as soon as the sucker buyers at the opening bell slow down.

The stocks that are down significantly in pre-market? There's a very strong chance that folks are short from the day before, and plan on covering and locking in their gains within the first hour or so of the market. These are stocks we want to buy as soon as the panic sellers at the opening bell slow down.

Usually by 10 am or so, the charts begin changing course. This is around when you make your position.

So while instinct tells us to buy stocks that are up in pre-market, and sell stocks that are down, we want to do the very opposite, as long as the news is there, the chart is there and we time our entries and exits properly we have a good chance at making some money in a short amount of time.

This day-trading technique is almost identical to our long-term investing thesis. Buy when others are selling, and sell when others are buying.

Here's to good investing!

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