Trading Gaps

wallmann

Junior member
17 0
We got more questions about trading a gap up day where the stock opens higher than our target. We have gone over this many times, so for you old timers, just pass on it, but for you newbies, here goes. When we put out a play, it's usually based on support and resistance. So, when we see that the morning has opened our stock above our target, chances are good that it has already cracked above the resistance level we were looking at. But, do you buy it then and there? At the open? No, not at all.

More times than not if a day is going to be strong, the stock gaps, then fades back a bit and then pushes higher. Since it is already above our entry price, we then use the "opening" price as the new entry target. So , let's say we like XYZ if it gets over 40.40. It closed at 40 last night, but it's opening at 40.85. It opens at 40.85, inches to 40.95 and starts pulling back. then, the overall market stops fading and the next wave of buying enters. We don't buy it yet.

Lets say XYZ fell to 40.65 and now it's pushing higher again. We look at it really hard at 40.85, and if it inches over 40.95, we take a shot at it. More times than not, surpassing the first few minutes "high" means the stock has cleared out most of it's overhead resistance and it could put in a really good day.

We don't like gap up days, nearly as much as flat days that build momentum. But, because they are common, we need to have a plan in place and that plan then becomes entering on the morning high push.
 

Naz

Experienced member
1,391 22
I love gap openings in to support areas.It helps if you know the stock.In Dows case the large drop the previous day was all down to a court case and the Union Carbide aquisition.This court case scenario had happened before at the beginning of the year and the stock had collapsed over a number of days to $24 and bounced at that level.$24 was also a key support level in the 60 minute chart as well.It helps to do some homework and be ready to pounce.
 

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