Trading stocks that gap up

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You alone are responsible for your investment decisions. My book, Swing and Day Tradingdedicates an entire chapters to the opening gap setup, starting on page I picture it on the left.

Day Trading Strategy | A Simple Strategy to Day Trade The Markets: The Opening Gap

For more information on the setup, buy the book. If you click on this link and then buy the book or anything at Amazon. The following discusses a day trading setup that uses an upward price gap at the open. For a downward gap long tradeclick here. The opening gap trading setup relies on a large price gap when the market opens for the day and a retrace of price into that gap.

Not all stocks covered the entire period. The larger the gap, the less chance of it filling by subsequent price movement. When I first tested this setup years ago, it held promise but like many trading setups, it has become less effective than it once was. Test it using your own data, in your own markets, and change it to suit your trading style. The following figure shows the ideal opening gap trading setup.

The vertical line separates the first day from the second on a 5-minute chart. At candle B, price gaps open higher than candle A which ended trading the prior day. Price may or may not continue trending upward. If it does, then it's best that the move up is a strong one, without consolidation regions, candles with small shadows, and little price overlap between bodies.

In this example, price reverses at candle B by forming a tall upper shadow. This is a hint that the bears have begun shorting the stock after realizing that it is overbought. The next candle, C, confirms this when it fails to make a new high and the body is black. Use this candle as the signal candle, meaning place an order to short the stock a penny or two below the candle's low.

The order executes at candle D.

Gaps | How to Identify and Trade Gaps on a Chart

Immediately place a stop above the systematic investment plan mutual fund sbi at candle C or keep the stop order in your head. If price reverses on you, the stop will close out the trade. As binary options dictionary excel drops, lower the stop but don't keep it too close. Lower the stop as each new candle forms using a penny above the prior candle's high as the new stop price.

Here, price closes lower at candle F but both E trading stocks that gap up F are small candles. The bulls and bears are fighting it out to determine direction. The tall lower shadow on candle E suggests that price is about to reverse. At candle F, lower the stop to a penny or two above candle E.

When candle F completes, lower the stop again to the position shown a penny or two above the high at F. Candle G gets you out of the stock by tripping the stop. On Christmas day, I had some spare time and a person asked me about the numbers. So I updated the research and this is what I found. A half gap is half the distance from the prior day's close to today's opening price. Entry is at Since the stop is far away from the low, once into the trade lower the stop to a closer point. The low at A is Since candle D bottoms at 47, switch to the 1-minute scale as price nears the target see next chart.

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This is DuPont on the 1-minute scale. The target is This method would have taken you out of the trade at candle A, which has a high price of This trade would have made First things first, but not necessarily in that order. Subscribe to RSS feeds. He may be reached at Support this site! Bulkowski's Opening Gap Trading Setup -- Short Side.

Background Methodology Checklist Research Example See Also Opening Gap Background The opening gap trading setup relies on a large price gap when the market opens for the day and a retrace of price into that gap. Opening Gap Methodology The following figure shows the ideal opening gap trading setup.

See Also These other trading setups may interest you. Review the performance of gaps. The results may surprise you!

A rising window has an upward gap. A falling window has a bearish gap. Here is an exciting use of gaps for trading.