Trading gap strategies

Playing the Gap

 

trading gap strategies

Trading the Gap and Go strategy requires acting at the market open or after the market open but not before the market open. The time during the pre-market hours is /5. Jun 13,  · The gap pullback occurs when novice traders are misled by a gap in the morning. The gap pullback is a great morning strategy as it reduces your risk as you are not buying at the highs of the day. At the end of the pullback, we need a reversal candle in order to enter a trade. Jun 16,  · Gap Trading Example. Let's look at an example of this system in action: Figure 1 - The large candlestick identified by the left arrow on this GBP/USD chart is an example of a gap found in the forex market. This does not look like a regular gap, but the .


Gap Trading Strategies [ChartSchool]


Gap trading suits every trading gap strategies style, from day trading to options trading. Read it all the way through before you read the gap trading strategies below. Day Trading Day trading gaps is possible, profitable, and easy. Almost every stock opens at a different price than it closes.

If a stock opens higher than it closed yesterday, short the stock. If it opens lower, buy the stock. Close your position as soon as the gap is filled. Pro: Almost always right Con: Need a large amount of money to get started 2. Options Trading Options trading can be complex because of the vast amount of options trading strategies.

Most options traders start with simple calls, getting as much as times the profit that the stock buyer gets, but you might consider other options trading strategies.

Overall, with options trading, you have many options pun intended. Read the following for a list of strategies useful in options trading. Credit Spread In a credit spread, you sell one option and buy another, cheaper, option. Debit Spread A debit spread is like a credit spread but backwards. For a debit spread, you buy the more expensive option and sell a less expensive option.

The bought option increases in value as the stock goes in the direction you want; the sold option protects you against time decay. Place the sold option at your price target. Trading gap strategies the other option at-the-money or in-the-money.

Pros: Profitable and protection against time decay Cons: Your profit is limited to the difference in the strike prices, times e. Iron butterfly An iron butterfly is playing two credit spreads at the same time, with the sold call and sold trading gap strategies having the same strike price.

You get the benefit of both credit spreads. You should only use an iron butterfly when you believe the stock will stay at or around the current price.

Generally, you want to play an iron butterfly after a breakaway gap that you trading gap strategies will level out.

Pros: Lots of income around double that of the credit spread Con: You have to be very sure of the stability of the stock to choose the correct strike price for the sold options.

As long as the stock is between those two strike prices when the options expire, you can keep all of the income obtained from playing the iron condor. For gaps, you should, like the iron butterfly, focus on breakaway gaps that you believe will stabilize, trading gap strategies. Cons: Less profit than the iron butterfly and requires the most margin of all options plays.

Again, for sideways strategies such as the calendar spread, you want to play them on breakaway gaps that will stabilize, trading gap strategies. Pros: Profit from trading gap strategies, no need for margin, super cheap, and the ability to pivot Cons: Profit margins tend to be small 8.

Penny Stocks Trading penny stocks on gaps is a good idea, as long as the gap implies the stock will be bullish. Penny stocks can bring in profit margins that few blue-chip stocks can. The best gap to play penny stocks on is the upward continuation gap, trading gap strategies. Continuation gaps indicate good news for the stock, trading gap strategies, which should drive the stock further up as investors catch on.

Pros: Potential for huge profits and cheap to buy Cons: The pump-and-dump phenomenon can make you lose your gains as quickly as you got them Main Types of Gaps 9. Area Gaps The area gap occurs on a small volume and within the standard trading region. However, you can still profit from area gaps if you know that most area gaps fill.

To play an area gap, bet in the direction of the gap closing. So for an up gap, short the stock or buy a put option or debit spread as above. For a down gap, buy the stock or buy a call option. Pros: Predictable and safe Cons: Potential for profit tends to be limited to the size of the gap e.

It is almost always accompanies with a statistically significant increase in volume. The breakaway gap tends to be in response to some news event, such as an earnings report or a change in the company structure e.

To play a breakaway gap, you should first analyze the candlesticks after the gap to ensure that the gap will widen the direction in moved has momentum behind it, trading gap strategies. In this way, you can make a bet in that direction. If you see the candlesticks after the gap as being stable, this is the best time to play a sideways options strategy, such as the calendar spread. Pros: Huge trading gap strategies potential Cons: If you misjudge a breakaway gap, trading gap strategies, you could lose a lot Continuation Gaps Continuation gaps are much like breakaway gaps.

Play up continuation gaps on low-cost stocks, such trading gap strategies penny stocks. Play down continuation gaps on high-priced stocks that are doomed to fail e. You might want to use options strategies to limit your risks. Pros and cons: Same as for breakaway gaps.

 

How to Day Trade Morning Gaps - 3 Simple Strategies

 

trading gap strategies

 

Jun 16,  · Gap Trading Example. Let's look at an example of this system in action: Figure 1 - The large candlestick identified by the left arrow on this GBP/USD chart is an example of a gap found in the forex market. This does not look like a regular gap, but the . Trading the Gap and Go strategy requires acting at the market open or after the market open but not before the market open. The time during the pre-market hours is /5. Jun 13,  · The gap pullback occurs when novice traders are misled by a gap in the morning. The gap pullback is a great morning strategy as it reduces your risk as you are not buying at the highs of the day. At the end of the pullback, we need a reversal candle in order to enter a trade.