Using Gaps as a Day Trading Strategy Part 1 πŸ‘Œ

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Using Gaps as a Day Trading Strategy. PLEASE LIKE AND SHARE THIS VIDEO SO WE CAN DO MORE Gap Trading Strategies that Generate Big Profits Part 1 We continue on gap trading strategies. There’s a lot to be learned from studying gaps in the trading chart. There are several different types, but all of them indicate a strong sentiment in one direction or another. It is the task of the trader to determine what type of gap and therefore what sentiment the market is feeling, so that you can make sure that you trade in a profitable direction.

A gap is formed when there is a total disconnect between the previous trading period and the opening of the new period. No trades happened at the values in between. The possibility of a gap from one day to the next is a powerful reason why day traders always like to close out all their positions every day and not leave anything open overnight. You could be powerless to prevent a large loss, and stop loss orders would do you no good.

There’s a saying in trading that β€œgaps are always filled”. This means that the price will always come back at some time in the future to trade at the values that were missed in the gap. This may be true in some cases, but it does not apply to all types of gap, as sometimes the price will keep on going away from the gap never to return.

If the gap happens in the direction of the trend, this is generally taken as an indication of strength and that the trend will continue. On the other hand, a gap that goes against the trend is definitely a sign of the trend is weakening, and possibly reversing.

The first type of gap to look at is called the breakaway gap, and this is often seen at the end of a trend. It’s a gap in price in a new direction, and signifies a reversal. To qualify, this gap has to show that it has the market sentiment, and therefore you should look for heavy trading volume. This is just the type of gap that may not be β€œfilled”, as there is no reason from current market sentiment to ever trade at the values that were missed.

What you can sometimes see though, is that the gap itself is used as a support or resistance level when the price retraces in its new trend. Again, the strength of the volume indicates how likely it is that this gap will not be traded into, but rather rebuff the returning price. If the gap is traded into, this indicates a breakdown of the breakout and reversal.

It is important not to get confused between different types of gap, as they can have totally different meanings. We look at other types of gap in the forthcoming lessons, including the types of gaps where you can expect the price to fill in, trading in the values that were missed. This requires a different type of market sentiment. As mentioned, a gap always indicates that something dramatic is happening to the psychology of the market, and it is just a matter of deciding how to interpret this strong signal.


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