A common question I receive while we are planning trades in the Extended Learning Track is whether or not I consider a supply or demand zone to be broken if prices happen to break it during a pre- or post-market trading session.
For those of you who may not be aware, there is trading that occurs before the 9:30am PST official market open and also well after the 4:00pm close. I want to caution you, this is not an invitation for you to trade during this time. The markets do not trade as they normally do outside of the regular trading hours (RTH). During the RTH, the market makers are required to post bids and offers to facilitate trading, hence the name market maker. But in the after-hours sessions, they are not required to do so.
Additionally, the spreads are quite wide outside the RTH of the market. This is partially due to the extremely low volume of shares traded during this time and the lack of market participants. Since the spreads are large, you would likely suffer a greater loss than normal if you needed to quickly exit a bad position.
And you can’t forget the lack of market order availability outside of the RTH. If you were not aware, market orders cannot be placed unless you are trading during RTH. This means that your stop loss orders cannot be placed to protect your positions.
The only orders I would ever try to place outside of RTH are to exit from an overnight position that was in jeopardy. You could use a limit order in that case if you were worried about protecting yourself against greater losses.
So back to the original question that was posed. When I look at my charts, I will check the pre- and post-market trading. I only do this to see where the price may open and anticipate gapping just before the market opens. I have a complete strategy that I use to trade the gaps and I share it with my students in the Extended Learning Track.
However, if price should trade in the pre-market through a supply or demand zone that I have identified, I will not consider that zone to have been broken and will still use it for trading when the RTH begins. Look at the following chart of NTAP. The pre- and post market candles are in pink and purple to separate them from the RTH green and red candles. Price was able to trade through the supply zone in the pre-market. But once trading opened for the day, the level stood firm and offered a great shorting opportunity.
There was a similar situation for SBLB in pre-market trading. Price had traded in and out of the demand zone during the pre-market. But traders who waited patiently for the open were rewarded with a long opportunity at fresh demand.
So the after-hours markets can be useful for some things. Trading is not one of them. So stay safe and trade with high probability.