I look at after-market activity for the previous day and pre-market data before I start the new investing day. I see in a number of companies shares moving more than 20% up and down in post and pre-market action on ECN’s, usually with low volume. What is the best way to take part in Pre and Post Market activity?

Trading before and after the open and close has improved in the last four years with more efficient trading systems and better liquidity. Anything to help match up orders helps, and with more individuals participating it has helped liquidity. One of the problems with trading outside ‘normal’ hours is that there is no market maker; orders have to be matched based on size and price. Thus you can put in an order at the ask or bid and not be filled simply because there is no matching counterpart to your order. Thus it can be hard to get out of positions in the outside hours.

The price swings you see are typical of these sessions. As we see with light volume days, if one side of the market takes over it can push prices hard. Or you can have big swings back and forth. It comes back to liquidity, and with fewer participants it is harder to find an equilibrium price and thus the price swings. You might want to buy for a quick turn for that 20% move, but due to the matching system of orders you may not get the other side of your play completed. Also, the closer you get ot the open premarket, the more realistic a price you will have versus say 1.5 hours before the open. After the close the further you move from the bell, the less and less relaible the action becomes.

This does not mean you cannot buy and sell in the outside hours and make money. Things have improved as far as matching orders. You have to know going in that getting the fill moving into and out of positions is not as simple as during regular hours.