What do you do with a market that

wallmann

Junior member
17 0
What do you do with a market that
gaps higher and simply keeps going?

That is without a doubt one of the toughest markets to play folks. What we
all want to see a a market that opens flat, and starts a series of 'waves"
that take us higher. But what the heck do you do when a market opens up 50,
adds 40 more in a heartbeat and then goes on for 100 more points? Well it
isn't easy, and it takes a strong backbone, but its certainly playable.

When you get a market like that, one that just "feels" destined to have a
big day, although it doesn't give you pullbacks to reload on, what it does
do is "pause". It might gain 20 or 30 points
and then the averages rest. But if you were looking at individual
stocks, each time the averages paused, you might see the leaders start to
fade a bit. Now they may not drop 2 points, but in a whacked out market,
you may have to be happy with watching it fade back 50 cents. Then as the
averages start to tick higher again the stock you are watching starts to
turn back up and often it will run well again.

So, the plan is to have a couple stocks that you are liking for the day
and watch the action. Lets say that you like XYZ and its 45 bucks. But it
opens at 46.25 and goes straight to 47.00. then the averages take a rest
and XYZ fades back to say 46.45, and then you notice the DOW ticking
slowly higher. Soon the NASDAQ is up a couple more. Suddenly XYZ the
stock, is at 46.60 and climbing. Its at that point that if the market
feels good to you, you have to take the shot and hop in. Is it a dangerous
feeling? Absolutely! Nothing scares the heck out of me more than buying a
stock long that is already up almost 2 dollars on the day and its only
9:45 AM!!!

But, when the market is in "crack" mode, a stock that is up 2 can easily
be up 4 so you "have" to go with it. Naturally we don't get careless and
we put a stop on it, but the biggest danger in a situation like that is
doing nothing. If you sit there frozen like a deer in the headlights, the
stock is going to run away from you and you will spend your time trying to
hunt for another one instead of making money!

One last note> Often when the market is running amok, we get into
a habit of chasing around the net looking for the next one to make a big
move. Do yourself a favor. Plan your trades and trade your plan. If you
start going bananas looking for everything that is running at the same
time, you will more often than not get in at the highs, and spend so much
time hunting you don't get any trades made. (IMO)
 

Trader333

Moderator
8,605 932
If you are concerned about whether to trade a gapping stock that does not retrace at all then quite simply dont trade it. But if you feel that you must then it would be wise to only do so with Nasdaq stocks where you can optimise your entry using a Nasdaq Level II screen and minimise your risk as well.

There are always a number of other stocks that will allow good trading opportunities and I dont see why anyone would compelled to trade a particular stock just because it had gapped.


Paul
 

Bramp

Newbie
8 0
Trader333 said:
If you are concerned about whether to trade a gapping stock that does not retrace at all then quite simply dont trade it. But if you feel that you must then it would be wise to only do so with Nasdaq stocks where you can optimise your entry using a Nasdaq Level II screen and minimise your risk as well.

There are always a number of other stocks that will allow good trading opportunities and I dont see why anyone would compelled to trade a particular stock just because it had gapped.


Paul

Newbie question here, but what does a Nasdaq Level II screen do for you? :rolleyes:
 

hungvir

Experienced member
1,556 12
Bramp said:
Newbie question here, but what does a Nasdaq Level II screen do for you? :rolleyes:

You may want to buy a book named something like 'The Nasdaq trader's took kit' :) Level 2 can let you buy at the bids and sell at the offers because you're dealing direct with all the big names and cut out your brokers. It also gives you a good sense of where the market is heading next. If you see on your level 2 screen that some of the big names like Goldman Sachs is dropping their price for a stock, it may be the time for you to do the same.

I wouldn't pay more than a penny for it a day. But I am not a day trader.
 

Trader333

Moderator
8,605 932
Newbie question here, but what does a Nasdaq Level II screen do for you?

It doesnt do anything for you and it is more about what you do with the information that can be read using Level II. People who use Level II do so in very different ways and the reason I say this is that I have never seen anyone else use it in the same way that I do but it is a useful tool and especially if you are using a Level II Direct Access platform to trade.


Paul
 
 
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