You will find that weak gap-ups are always Gap up to resistance or gap down to support. This price action is usually designed to trap you into a potentially weak market and into a poor trade, catching stop-losses on the short side, and generally panicking traders to do the wrong thing. Near the end of an uptrend, the exhaustion gap occurred. However, that upward gap quickly fades and prices turn lower. When prices close under that last gap exhaustion gap , it is usually a dead giveaway that the exhaustion gap has made its appearance.
An exhaustion gap occurs with extremely high volume. These gaps appear at the beginning of the moves. Generally occur at the supply or demand zone. Gap up from demand zone and gap down from supply zone when price approaching the quality supply and demand zone. However, low volume warns you of a trap up-move which is indicative of a lack of demand in the market after a gap up resistance.
There are three factors to monitor to determine whether the gap is real or trap. The three factors are volume, opening price, and pullback. After a gap up, the pullback to be watched.
All gaps are not filled in that day. When a market gaps up, then the gap act as a support level for any pullback. If you are tired of transferring your account into someone else's, stop looking at the market the same way everyone else does! Get an edge on the markets with our daily trading newsletter, Trading Insights, and receive timely trade ideas covering stocks, options, futures, and more to keep you on the right side of the action.
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Sam Seiden. Chief Education, Products and Services Officer. Could we have been wrong? Of course; that's trading, which is why we focus so much on risk. Here are four rules to keep in mind when you have a gap: A gap up in price, into supply, after a rally in price, and in the context of a downtrend, is a very high-probability shorting opportunity A gap up in price, and in the context of an uptrend, is a lower-probability shorting opportunity and can actually be a buying opportunity on a pullback to demand when there is a significant profit margin above A gap down in price, into demand, after a decline in price, and in the context of an uptrend, is a very high-probability buying opportunity A gap down in price, and in the context of a downtrend, is a lower-probability buying opportunity and may in some cases be a shorting opportunity after a rally into supply when there is a significant profit margin below See related : Best and Worst Gap Trading Set-Ups While there is much more on gaps than I can write about, in a short piece such as this one, keep in mind that the picture of the ultimate supply and demand imbalance is a gap.
Avi Gilburt, Esq. Jon Najarian. Carley Garner. You must be logged in to post a comment. Trading the Opening Gap Strategy. We use cookies on our website to give you the most relevant experience by remembering your preferences and repeat visits.
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We also use third-party cookies that help us analyze and understand how you use this website. These cookies will be stored in your browser only with your consent. You also have the option to opt-out of these cookies. But opting out of some of these cookies may affect your browsing experience. Necessary Necessary. The Gap and Go strategy is not a reversal strategy, it is a continuation strategy. The most common reason for a gap on individual stocks is news regarding earnings announcements and company news, while general market news can have an impact on the whole financial market.
When looking for a Gap and Go strategy with high continuation momentum of the gap-direction, you have to know why the stock gaps. If there is only general market news or an unknown reason, keep your fingers far away from any buy or sell order.
You have to know the reason to be able to evaluate if the news has enough power to continue the price movement. Remember, it is always about supply and demand.
And please remember. News causes movement. Not technical setups itself. Many day traders simply trade a boring breakout or breakdown. But if there is no news behind it, then the move will end fast or the markets will just go sideways. The key point is, the price movement should be supported by major news. Scanning for news is easy with TheFly.
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