mp6140

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hey

the "gap" play, be it up or down is a remarkably simple and consistent play that produces very nice returns and has the added advantage of not counting as a "daytrade" for those without pattern day trader accounts. basically, you could do as many of these a week as you have funds for and never be called for breaking the "no more than 3 daytrades in a 5 day period" regulations !

the play is simplicity itself, but should be paper traded like any other new trading situation ! i look for a STEADILY uptrending stock that is in its FIRST or SECOND day of a rally, based on ANY reason for the interest in the stock, be it revenue news, acquisitions, technical bounces or just about anything you can imagine that makes a stock move.

the reason for only playing day one or two is that "most" stocks rally in a 3 day up and 2 day selloff pattern, with some doing (most unusual) 5 days up and 3 days down. this is not a hard and fast rule, but i play averages and "WITH the house odds" and not against them, and this keeps me on the right side of the slippery slope of trading ! (and yes, there are certainly stocks that will rally longer, but they do not fit the "averages" and if you keep swinging at home runs, sooner or later you strike out big time !

so youre looking for a STEADILY uptrending stock (not a spike or a flash in the pan) that has either gone up nicely all day or a stock that has bottomed at support and turns around during the day, breaks its prior days close and makes its way to the pivot point (where it usually pauses until tomorrow) i personally prefer the former because you dont ALWAYS know if the bottom bouncing stock will continue the following day --- usually, but not always and then youve gotten stuck ! and on the other side of the coin of course, if youre ALREADY in a good runner, and its day one or two, STAY in the stock for its most probable gap the next day ! and believe it or not, you soon get to the point where you simply look at an intraday chart, see how SMOOTHLY the stock has gone up and know thats the one !

oh ya --- check your stock quickly on a 10 day/60 minute chart to see just how close the stock is to the top Linear Regression Channel as this tells you how much further the stock will run "on average" !

but whatever style you choose, it MUST be a stock in its FIRST or SECOND day of the rally and (at least for rookies) NEVER the third ! (the third day is the gap and subsequent beginning of the selloff ---- it can be played by those with experience and fast trading abilities and LARGE resources to take advantage of the small move and short time exposure on the gap day, but its not a trade for someone just starting !)

entry positions vary on your experience and prior history of the stock, although you will know well enough by 3:30 what the stock is going to do. now lately, from 3:30 or so, a strongly trending stock, in its first or second day, will DOWNTURN very close to the end of the day. if the stock is strong, this is a perfect place to enter as there is simply more profit available the next day because of the lowered price on the stock !

mikeys method (you thought i could pass up the opportunity ?) will show you all day long the momentum strength of the stock and i usually "have" my pick by two oclock in the afternoon because SOLID momentum does not change, especially if its day one or two of the rally ! (i need to keep emphasizing that because many fail to trade this way and simply lose )

now "on strong average" a gapped stock on day 3 will run until 10am, at which point the mms change its direction and the stock starts its selloff, which also allows the mms to make oodles of money by shorting the stock and then covering it when it hits bottom ! YOU WANT TO BE OUT OF THE STOCK BEFORE THEY DO THAT, or youve just given away 2 days profit !

so to refresh ---- STEADILY uptrending stock, in its FIRST or SECOND day of a new rally which you buy after 3:30pm, hold overnite and exit 29 minutes after the market opens the following day !

the above description is what i consider to be a SAFE method of working the averages and levels the playing field as much as we can level it. once youve got this method down, there are many alternative methods of playing the same game, but you must draw on experience and some tech analysis to play them well !

now, how many shares to buy ? i usually figure (and its not written in stone) that the stock will run to "at least" the first resistance point and so i buy enough shares based on the price difference between the pivot point and the first resistance point to make a profit and cover expenses. its a very simple calculation and should be done with any stock youre going to enter, no matter what the play. after a very short time, it becomes automatic and you simply "know" how many shares to buy based on the pps of the stock !

there, clear as mud !

trade well

mp

Tarheelblue

Damn MP! Great answer.

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Stock_Analyzer

is mud really that clear lol....good job MP "rack this one!"

pattern dude

craig

i'm sure mp has the answer covered for ya but i just thought i'd mention the other gap play. for us slower swing traders.
on a longer term look for stocks that continue in the direction of the gap up and watch for a test of that gap area. some fill the gap completly and others just test the general area. after a gap up, go long after the test is done for a nice swing trade. pretty good system if ya don't get greedy.
in this example slglf came back and gave a nice entry to those that missed the run.

the gap play for us slower folks...

F1ynn

and that was a great answer, i have to print this out and try it for sure

capt_nemo

here on the hideout, You folks that do this for a living!!!! KUDOS!!!!!

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All ambitions are lawful except those which climb upward on the miseries or credulities of mankind.
Joseph Conrad,

Use your own mind on what to buy and sell!!

Sideem

Pattern_dude...the circled area in blue on SLGLF's graph in early February...is that considered a gap? And does that eventually need to be filled? Thanks in advance!

Stock_Analyzer

yes that is a gap and "usually" they will bring the price up or down to fill those gaps. Not 100% of the time but its a good bet that if we get near there they will fill that gap.

Sideem

Wow...you're fast stock_analyzer... Thanks.