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Trading Gaps

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Trading Gaps. October 21, 2008. Presented by. Robert Shapiro. What is a Gap ... Most trading software provides a gap scan. Look at pre market gainers and losers ... – PowerPoint PPT presentation

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Title: Trading Gaps


1
Trading Gaps
  • October 21, 2008

Presented by Robert Shapiro
2
What is a Gap
  • A space between objects or points
  • An interruption of continuity
  • A conspicuous difference or imbalance
  • A gapping stock is simply opening at a price
    different from the prior days close.

3
Why Trade Gaps?
Gaps often Shock
  • A shocking gap often implies higher volatility
    than the general market, presenting a trader with
    greater opportunity.

The combination of a technical pattern and a gap
often increase the chances of a predictable price
move thereby enhancing that trading opportunity.
4
Psychology of gaps
  • Many traders incorrectly assume that a stock has
    a value different than the price. A shocking gap
    can instantly prove they are wrong, and force
    action that is predictable to an experienced gap
    trader.

This is a very different situation as when the
price has traded to a new price.
It is not just the price, it is also how it got
there.
It is a misconception that gaps always fill.
5
How to find Gaps
  • Most trading software provides a gap scan
  • Look at pre market gainers and losers
  • Third party scanners that include gaps
  • I also re-check after the market opens

6
Types of gaps
  • Professional - A gap that suddenly gaps against
    the current direction of a stock suggesting that
    a new move is beginning

Novice- A strong multi day move that gaps in the
same direction suggesting that the current move
is ending

Continuation A gap in the same direction as the
current move.
Mega- A huge gap that is hard to predict.
Although once it gets going, it can often move.
Everything else- Just because something gaps,
doesnt mean it is interesting.
7
Rating the Gap
  • Prior Pattern
  • Long Term
  • Short Term

Where is it gapping to? What is the size of the
gap?

With or against the general market?
Did the gap fill or hold?
8
Entries
  • Best gaps may be entered on the gap alone
  • Or you can wait for an intraday pattern
  • You can even swing trade gaps on the 60minute or
    daily chart.
  • Good gaps often set the direction of the stock
    for a long time.

9
Professional Gap
10
Novice Gap
11
Find the Gaps
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