HOW WOULD YOU FEEL AFTER THE GAP IF YOU HAD 10 GRAND RIDING ON IT, taking in to account everything you have learned, like what was the previous candlesticks doing before the Gap (was it Bullish green candlestick followed by a Gap down even possibly below support or resistence, POSSIBLY to a further red candlestick, ie. this would be a bad sign that it has gapped down as traders are now losing money, and you would panic and Sell, possibly sending it further down), has the Gap broke that line of S&R, is it a Gap & Go or a Re-test Gap etc……
A PROFIT IS A PROFIT, DONT GET GREEDY, THERE WILL ALWAYS BE OTHER OPPORTUNITIES AS ITS FREQUENT OCCURENCE DAY TRADING, SO TAKE WHAT YOU ARE HAPPY WITH, as bluechips won’t be lottery winners
AND REMEMBER ITS ALL VICE VERSA, ALONG WITH BUY LOW SELL HIGH, YOU CAN ALSO SELL HIGH AND BUY LOW
ALWAYS USE LIMIT ORDERS, NEVER MARKET ORDERS FOR ANYTHING, FUTURES, DAY TRADING, OPTIONS ETC…..
I now understand why you use a limit orders, you can even set a limit order one penny above the Nat price, this way you get the price you want and avoid slippage and never get screwed
Gaps are all about the prior candlesticks of that Gap and the pivots, and a one pivot can be an S&R line however the more pivot points that match up the stronger the level of S&R becomes, AND ASK YOURSELF EVERYTIME A NEW CANDLESTICK APPEARS ON A CHART “WHAT TYPE OF CANDLESTICK IS IT 🤔 (curious), and who, looking at the bigger picture, is making money and who is losing money (ie. who is previously trapped from the move made by the new candlestick and is it a Gap)”, and where is the market trending towards. Maybe use SMA’s with a daily timescale for longer Options trades (ie. 45 DTE), I know this bit is going a bit off track from day trading)) – THIS REQUIRES REAL HARD THOUGHT
ALWAYS CHECK TO SEE IF A HAMMER OR SHOOTING STAR HAS BEEN TRAPPED, see below
- A red candlestick of some nature (like a Hammer) at the end of a downtrend (ie. a trap) gapping up to a green candlestick (long day or not) is likely to be a Gap & Go usually to trade off the bat (right away), and is even more of a Gap & Go if it clears some form of recent resistence (ie. a resistence line you draw on)
- A green candlestick of some nature (like a Hammer) at the end of a downtrend gapping up to a green candlestick (but it can be red or long day or not) is likely to be a Re-test Gap, so wait for that re-test then confirmation before trading
- If its a Gap & Go it usually has a bit of continuation because the brakes take a bit of time to work, whereas if its a Re-test (ie. it will eventually retrace after gapping) things have had time to settle a bit, think of the laws of motion
So, it would be something like this, PLEASE NOTE, THIS IS ONLY A ROUGH GUIDELINE :
BULLISH ~ a downtrending Red Hammer can be a trap and can lead to a bullish Gap & Go which would be a Green candlestick and further continuation (picture it in your mind). A Green Hammer is mellower and could lead to a further Green candlestick then a Re-test or just a Re-test. These Hammers can also be inverted and they will have different permiatations which would be easier to think about than try to explain, SO THINK ! (but just say it was a Red Inverted Hammer at the bottom of a down trend, that could be it could lead to a straight Re-Test as its still a bit bearish although a bullish Gap hence that Red Inverted Hammer showing bearishness before the Gap up (again picture it in your mind))
BEARISH ~ an uptrending Green Shooting Star can be a trap and can lead to a bearish Gap & Go candlestick which would lead to a Red candlestick and further continuation, EVEN MORE SO IF IT CLEARS A LINE OF S&R. A Red Shooting Star is mellower and could lead to a further Red candlestick then a Re-test or just a Re-test. These Hammers can also be inverted and they will have different permiatations which would be easier to think about than try to explain, SO THINK AS THE SAME PRINCIPLE APPLIES AS TO WHAT THE ABOVE PARAGRAPH STATES !
Long lower wick is a bullish sign that the buyers are getting the upperhand
Long upper wick is a bearish sign that the sellers are getting the upperhand
You have to ask yourself, “what would I do in this situation“, for example, if both you and an asset was bullish but an asset gapped down, would you bottle it, yes you would, its human instinct, hence inducing further selling therefor a likely drop, and if it did gap down past prior support, thats when alarm bells would really start ringing, as it would with many others, like the volume on the below graphic shows, leading to possible further drop
Plus with the above, traders SL’s would be set just below the support line and would also be triggered and become further Selling orders, therefor adding to that downwards momentum, THESE ARE JUST THE TYPE OF THINGS YOU NEED TO LOOK FOR, YOU NEED TO THINK OUTSIDE THE BOX
Gaps tend to happen frequently when day trading (particularly when using a smaller timeframes similar to what you would use when day trading), and there are two types of Sellers, those who Buy then Sell to take profits, and those who Sell to open a new trade to go short, this is where a bear trap comes in to it when gapping. If on a downtrend you get all red candlesticks culminating with a red reversal bullish candlestick, like a red Hammer, that downtrend shows that they are selling to go short, and the more there is, the more the Sellers are jumping on the bandwagon, but have now been trapped by that bullish reverse GAP UP (illustrated below), therfor they slam the brakes on hence the long lower wick, like skid marks off a car, they slam them brakes on (visualise them slamming on, with the inertia feeling like suddenly braking), the skid marks (ie. the buying pressure) and the red hammer are the momentum of the downtrend, before stopping, and as they then Buy to Close there existing Sells it goes the otherway (or rises), and how, because everyone HAD jumped on that bandwagon, it is sometimes can be called a short squeeze, although there could be different reasons for a short squeeze occuring. AND IT DOESN’T HAVE TO BE A LOAD OF RED CANDLESTICKS TO SHOW THE TRAP AS BELOW ILLUSTRATES, IT COULD JUST BE ONE CANDLESTICK, WHEN ITS LOADS ITS JUST GOT MOMENTUM, AND IS LIKELY NOT TO EVEN HAVE A RE-TRACE AFTER THAT GAP UP, and if its a green bullish reversal it doesn’t have as much momentum (less iniertia) hence a potential re-test, and may be worth waiting for that to happen, as the lower graphic displays : (16 MINUTES ONWARDS OF THIS LINK IS A GREAT EXAMPLE OF SENTIMENT)
If its a green Hammer reversal, as below, , its just natural trading progression and not as prominent, but it doesn’t mean its not prominent, its just not as prominent, and may re-trace quicker than a red candlestick like would possibly lead to, like that Hammer, so it may be better waiting for that re-trace to happen, but also taking in to consideration a possible run up or drop, and its size, link
Maybe a gap will form, and rise further, then there will be a re-trace, then a further rally, and vice versa for bearish, AFTER THE GAP, LOOK FOR BULLISH SIGNALS LIKE A GREEN HAMMER ETC…, link, ITS ALL ABOUT READING THE OVERALL SENTIMENT AND WHAT THE BEFORE AND POST GAP IS TELLING YOU, LIKE ABOVE
A further example below, shows when you would definately potentially look for a re-test, as the large rise and the long say candlesticks show around the top gap up, BUT REMEMBER, A LOT OF PROFIT HAS ALREADY BEEN MADE HERE, if there hadn’t been a long run up and lots of profit already made, it wouldn’t neccesserily mean there would be a re-test as further profit could still be made, it really is down to reading the bigger picture
This >>>link<<< is WELL WORTH A WATCH from around 9 and a half minutes onwards, as it contains loads of info about reading that BIGGER PICTURE, and it would be easier to watch it rather than explain it (the X (US Steel) example is very good that is towards the end)
When that price does change direction and create an new support or resistence, that’s called a pivot, simply because the price action is pivoting
An further example of what could cause a Gap & Go :
Retrace Gaps ~ a gap will eventually retrace at some point be it bullish or bearish (hence the industry saying “all gap’s eventually re-fill” or “the window opens (ie. the gap), then it shuts again (ie. the re-fill)”, and usually the bigger the gap the bigger the retrace or the closing of the window. Find a gap, milk it, move on, don’t get greedy. An idea is the you would get a bearish gap (ie. it gaps down), then a retrace, but dont forget, the retrace will also retrace then progress again, IT DOESN’T MEAN IT WILL FOLLOW THIS PATTERN, SO SET YOUR SL’s, and if it does progress, follow it, just tighten your stops as it goes, and if it doesn’t and your SL is triggered, draw a line at the SL level (COLOUR CODE IT SO YOU KNOW WHAT IT REFERS TO) and then watch it for confirmation of a rise back after dropping through that line and trade it then, if it does arrive that is, link, its vice versa for a bullish gap (ie. its a gap up), as below illustrates :
Just flip the above on its head for a bullish gap, think Lee, its a bearish gap at the very start of the gap, also called an exhaustion gap, as people get excited with the new price, rush in, but it doesn’t hold and exhaust’s itself
A Gap up after a long day candlestick could prove to be a retrace, and it is well worth watching the sentiment post Gap up, as below shows : (THIS WAS ALSO AFTER A STRONG RUN UP ALTHOUGH THE GRAPHIC DOESN’T SHOW THIS, HENCE THE BIG DROP DUE TO THAT LARGE RUN UP)
Ask yourself, “what was the candlestick before the Gap”, was it bullish on a down gap, if so, they will be trapped and will BTC creating a further drop as below shows :
Trading these Gaps could be a Day Trading strategy, if you read the sentiment correctly, ie. red candlestick reversal (like a Hammer) then a gap, so the bears are trapped, then a go as the bears then BTC making the price rise as described above
An ideal scenario would be to get a trap of some nature, a gap and go continuation to prior resistance that you have identified and drawn on, then a re-test to maybe prior support, then further continuation, OR AT LEAST SOMETHING SIMILAR TO THIS, this is for bullish, its just vice versa for bearish, imagine climbing a mountain for bullish, and your ski-ing down that mountain for bearish, as shown below :
An example of S&R lines drawn on a chart :
Another Idea, not ideal, but idea, would be to use EMA’s (as they are sharper) to wake you up to a candlestick change in direction :
When you Sell, you borrow the money to Buy shares at a higher price, to then be able to Sell to Open the trade at that higher price, and when the price has gone down, you Buy to Close the trade at that lower price, pocketing the difference between that higher and lower price, DON’T THINK ABOUT IT, IT JUST WORKS LIKE THAT, the caution is that it may not drop BUT you still have to pay off the loan PLUS the extra rise value. Buying is just vice versa, as in you Buy to Open a trade, ie. you want it to go up, then Sell to Close the trade once it has gone up, pocketing that difference. So Sell to Open the trade if you want it to drop, and Buy to Open the trade if you want it to rise, then you just close out whichever
Gaps can appear in stocks (usually larger ones) because they are globally traded, so although you can be out of hours from the US market, it could still be getting traded in Asia for example, and the Asians might be all in on it for whatever reason like good news etc… or a buyout, hence it gapping up on the re-open of the US market, and likewise for gapping dow, it could get bad news overnight, like a scandal etc….
- You could develop a business using Gaps
- Use Finviz to find Gaps along with Assets at S&R by using the pattern field (ie. ranging etc) so you can apply strong signals like the shooting star or the hammer
Flag and pennant needs developing
F=MA 