Kardec Trader explains why using pre-market highs as stop losses gets you hit. Market participants push price above those levels to trigger stops and grab liquidity, then let the stock collapse. A 75% gapper shows the pattern: shorts cover as price clears pre-market highs, then dumps.
In these scenarios, as you said, most people would use the pre market high as a stop loss. What would you be using in that scenario? If you want to take a purely systematic approach? I found that using the pre market high is not a good stock because a lot of the times they'll look to clear the highs, creating a liquidity event, stopping people out, and then the stock proceeds to dump immediately. Let me show an example here. So let's say this is the pre market high. It fades off before the Open. 75% gapper at the open. So that would probably meet most people's criteria for a short. So they would short the open right here. And let's say it starts fading a little bit and they're thinking, okay, we're in the green, we're looking good. But then, oh, it starts reclaiming. It's 10am it's reclaimed the open and it's approaching the pre market highs. And if your stop is right here at the pre market high, a lot of the times the patterns will look like this. It'll clear the pre market highs just briefly and then immediately come crashing back down. Because the riggers want to extract the most amount of liquidity they can out of the market. And they're not going to do that if they just fade it down all day. They need to get some kind of panic out of the short sellers. And the only way to get that liquidity and the force the covers is to break the pre market high.
