Learn to Trade the Open

Day Trading the Open

Learn to Trade the Open and Short-term trading assumes buying and selling stocks often. After two to four months a trader will have good statistics and he or she can start an analysis of trading results.

What are the main questions, which should be answered from this analysis? Learn to Trade the Open
– Is my trading strategy profitable?
– Is my trading strategy safe?
– How can I increase the profitability of my strategy and decrease the risk of trading?

Smart-Idea-150x150No doubt it is better to ask these questions before using any trading strategy. We will consider methods of estimating profitability and risk of trading strategies, optimally dividing
trading capital, using stop and limit orders and many other problems related to stock trading

How to be a Successful Stock Trader Learn to Trade the Open

Gaps can be classified into four groups:

  • Breakaway gaps are those that occur at the end of a price pattern and signal the beginning of a new trend A breakaway gap represents a gap in the movement of a stock price supported by levels of high volume.

A gap that occurs along a trend line is called a runaway gap or a measuring gap. Often, a runaway gap appears in a strong trend that has few minor corrections.

  • Exhaustion gaps occur near the end of a price pattern and signal a final attempt to hit new highs or lows. A gap that occurs after the rapid rise in a stock’s price begins to tail off. An exhaustion gap usually reflects falling demand for a particular stock.
  • Common gaps are those that cannot be placed in a price pattern – they simply represent an area where the price has “gapped.” price gap found on a price chart for an asset. These gaps are brought about by normal market forces and, as the name implies, are very common. They are represented graphically by a non-linear jump or drop from one point on the chart to another point.
  • Continuation gaps occur in the middle of a price pattern and signal a rush of buyers or sellers who share a common belief in the underlying stock’s future direction.
  • Price patterns are used to classify gaps, and can tell you if a gap will be filled or not. Exhaustion gaps are typically the most likely to be filled because they signal the end of a price trend, while continuation and breakaway gaps are significantly less likely to be filled, since they are used to confirm the direction of the current trend.

Trade the Open

The Gap Fade strategy consists of short-term trades utilizing calls or puts that last a maximum of two days. The strategy typically trades one to five times a month, thereby limiting exposure to the market to less than one-third of all trading days. Gaps are pricing discrepancies that are typically created by news.

Stocks or indexes can gap up or down due to a wide variety of news events. Earnings reports, analyst upgrades or downgrades, earnings pre-announcements, economic reports, oil prices and geopolitical news are just some of the catalysts that typically lead to a gap in the market.

Learn to Trade the Open

The theory behind gap openings is that the opening price does not reflect the true value of the stock or index. Because this is an artificially inflated or deflated price, the expectation is that the stock or index will trade back to the previous day’s high or low, depending on the type of gap opening.

To “fade” the gap means to move in the opposite direction of the gap. If SPY gaps up, it is expected that it will most likely “fade” back down towards the previous day’s high. The opposite is also true for a gap down in SPY.

 

About the Author

Leave a Reply 2 comments

bob Reply

good information–I know with a proper plan –trading the first hour of trading (after many hours of trading –500-1000-hours)-can be profitable–IF TRAINED PROPERLY)–AKA-leave gun in holster–no gun slinging .Always back to Plan your trade,tradeyour plan-no exceptions.

    Pete Renzulli Reply

    Trading plan is everything!!
    No plan no edge

    Love having you in the room with us.

Leave a Reply: