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Gap Plays
- Thread starter gapster
- Start date
Quote from javs5150:
Can this strategy work with listed stocks?
i haven't played NYSE stocks because they don't show up on my esignal pre-market scanner.
however...
if they gap and move violently in one direction or another, then yea why not make some money on it? someone should pick up that cash laying on the floor. might as well be you.
p.s. the island.com top20 list can be used to find NYSE stocks (and also NASD stocks for that matter) that are gapping but i don't like to bother looking up the average daily volume on them.
<-gapster->
Quote from javs5150:
Thank you very much for the reply. Will try this with listed stocks starting Monday. Are there any other gap play strategies you are successful with?
I don't want to bad mouth Trendfund, but their strategy of buying a Gap Down on the 5-Minute High plus $.01 break or shorting a Gap Up on the 5-Minute Low minus $.01 break is not a good one IMO.
With a lot of these "violent" gapping stocks, the daily range is over before the first 5 minutes! Plus they have been shorting GOOG during its recent unheard of runup each time it Gapped Up and broke it's first 5-minute Low, all with a $2-$3 Stop Loss too.
Sheeeze....!
<-gapster->
From a PM
*********** wrote on 06-03-05 08:10 PM:
So, you short stocks that have gapped up a $1 or more as long as time and sales is showing the stock going down and you go long stocks that have gapped down a $1 or more as long time and sales is showing the stock moving up.
No, not exactly/completely.
I'm just as likely to SHORT a Gap Down as to go LONG. Go in the direction of the violent price movement if one exists at the opening. Observe the time and sales to decide:
1) if you should even be making a play (If you see no "violent price movement" after 5-10 minutes into the opening, call it a day and go back to sleep. Tomorrow is a new day for you!)
2) and if so, what direction to do it in
Then much much more importantly, apply money management once you are in the trade:
3) Set a Stop Loss (I set mines as -$200. Once my portfolio hits that, I EXIT. He who admits his mistakes makes money! Trade no more for today. Tomorrow is a new day for you!)
4) Set a Profit Target. (I set mines at $1000. Once my portfolio hits that , I EXIT. After this point and in profit, you may trade again if you know what the heck you are doing! Otherwise, don't.)
Pretty simple, huh?
Most important thing is to keep your stop losses TIGHT. If you are wrong admit it quickly by closing your position! This is probably the Number One way to make money in this game. We all have our losers! But, if you don't keep the dollar figures of your losses down you won't win no matter how many winners you have!
AND NEVER EVER AVERAGE DOWN. This is a sign of a total loser who won't admit his mistake. The absolute worst thing that can happen to someone who averages down is if he actually pulls out a winner. You have then set yourself into a downward spiral and will indeed blow out your account. For which I will say "Thank You".
<-gapster->
Pre-Market Gap Stock Watchlist for June 6, 2005 MONDAY:
Gap Downs:
TEVA
RIMM
SEPR
SNDK
UTHR
ATYT
Trading Guidelines:
1. Open up Time and Sales windows on each stock listed.
2. Watch the price movement when the market opens at 9:30am
3. You want to see "violent price movement" in a single dominate direction.
If there is no violent price movement, DO NOT PLAY THIS STOCK! If nothing
happens by 9:40am at the latest, call it a day. Go back to sleep.
4. You usually will see a violent price movement (if one is going to happen) a
few seconds after the open. The price will rise/fall .25 to .50 to a point or more
within the first minute. This is the signal to OPEN YOUR POSITION via ARCA ECN.
5. Stocks on this list are on the Alliance (Elitetrader Sponsor) Short List via
ARCA ECN (no uptick rule.)
Once you open a postion, your success depends on two things (aka money management):
6. Set a STOP LOSS! I put up my real-time portfolio value in Dastrader by Alliance.
I won't take more than a -$200 hit on it. If I am stopped out, then I call it a day. Do
not be the Fool and make a "revenge" trade. That is what losers do!
7. Set a PROFIT TARGET! I aim for a $1000 profit on each trade I do. Once I get it,
I immediately exit and call it a day. Yippee!
I trade a minimum of 1000 shares (but may increase this under certain circumstances.) In
other words, my stop loss is 20 cents from where I entered and my profit target is $1 into
where I entered. Also contrary to general opinion, I only enter via Arca MARKET ORDERS (never
Limit Orders.) I also exit STOP LOSS @ Market but may exit @ Profit Target via Limit Orders.
Also, you must be flexible with that profit target. Get ready to close out your profitable
position if the price hits whole numbers and won't go past. Say you went Long @ $38.25 and
the price shoots up to but has trouble going past $39 and even starts to reverse. This is
your signal to EXIT. This also may happen to a lessor extent at "halves" i.e. $38.50 in the
example given. Again watch the price action.
On the other hand, if your profitable position shoots past $1000 and has no signs of stopping
then let it ride! If after a minute or two into the open you are at $2000 plus profit (it
happens folks) why would you want to exit? Be flexible this way too. You should at a minimum
set your new "Stop Loss" at your former $1000 profit target. Or at a $1500 profit. Again,
watch the price action.
Gap Downs:
TEVA
RIMM
SEPR
SNDK
UTHR
ATYT
Trading Guidelines:
1. Open up Time and Sales windows on each stock listed.
2. Watch the price movement when the market opens at 9:30am
3. You want to see "violent price movement" in a single dominate direction.
If there is no violent price movement, DO NOT PLAY THIS STOCK! If nothing
happens by 9:40am at the latest, call it a day. Go back to sleep.
4. You usually will see a violent price movement (if one is going to happen) a
few seconds after the open. The price will rise/fall .25 to .50 to a point or more
within the first minute. This is the signal to OPEN YOUR POSITION via ARCA ECN.
5. Stocks on this list are on the Alliance (Elitetrader Sponsor) Short List via
ARCA ECN (no uptick rule.)
Once you open a postion, your success depends on two things (aka money management):
6. Set a STOP LOSS! I put up my real-time portfolio value in Dastrader by Alliance.
I won't take more than a -$200 hit on it. If I am stopped out, then I call it a day. Do
not be the Fool and make a "revenge" trade. That is what losers do!
7. Set a PROFIT TARGET! I aim for a $1000 profit on each trade I do. Once I get it,
I immediately exit and call it a day. Yippee!
I trade a minimum of 1000 shares (but may increase this under certain circumstances.) In
other words, my stop loss is 20 cents from where I entered and my profit target is $1 into
where I entered. Also contrary to general opinion, I only enter via Arca MARKET ORDERS (never
Limit Orders.) I also exit STOP LOSS @ Market but may exit @ Profit Target via Limit Orders.
Also, you must be flexible with that profit target. Get ready to close out your profitable
position if the price hits whole numbers and won't go past. Say you went Long @ $38.25 and
the price shoots up to but has trouble going past $39 and even starts to reverse. This is
your signal to EXIT. This also may happen to a lessor extent at "halves" i.e. $38.50 in the
example given. Again watch the price action.
On the other hand, if your profitable position shoots past $1000 and has no signs of stopping
then let it ride! If after a minute or two into the open you are at $2000 plus profit (it
happens folks) why would you want to exit? Be flexible this way too. You should at a minimum
set your new "Stop Loss" at your former $1000 profit target. Or at a $1500 profit. Again,
watch the price action.
Excellent journal Gapster. In theory, your system is very promising because it provides you with a lot of control:
- You know when you're wrong and when you need to get out and
- Your profits come in quickly when you make a right move.
As a way to keep improving the system, I would be curious to know if news about companies that gapped profitably have common patterns. I know you're not interested in fundamentals -- and you might be right -- but if there were something in the news that is common to your succesful trades you would get an additional element of control over your trades: knowing what is actually going on.
- You know when you're wrong and when you need to get out and
- Your profits come in quickly when you make a right move.
As a way to keep improving the system, I would be curious to know if news about companies that gapped profitably have common patterns. I know you're not interested in fundamentals -- and you might be right -- but if there were something in the news that is common to your succesful trades you would get an additional element of control over your trades: knowing what is actually going on.
Quote from steveosborne:
As a way to keep improving the system, I would be curious to know if news about companies that gapped profitably have common patterns. I know you're not interested in fundamentals -- and you might be right -- but if there were something in the news that is common to your succesful trades you would get an additional element of control over your trades: knowing what is actually going on.
I try to figure out "what is actually going on" by observing the price action of the stock. also the only way I know a stock "gapped profitably" is if I can figure out the momentum of the opening correctly and again that is only by observing opening price action.
I'm not right 100% of the time either...
<-gapster->
gapster,
Very interesting. Gaps are a big part of my trading. Sometimes I think I would be better off if I just turned off the computers at 10:30 AM.
As I understand your approach, you try to get in on the very first momentum move off the opening. Don't you find that this reverses very quickly and unpredictably at times? It has always seemed to me that buying the initial gap (up) was a tough play, but you seem to be making it work. I'll have to look into it again.
Good trading and thanks for this interesting journal.
Very interesting. Gaps are a big part of my trading. Sometimes I think I would be better off if I just turned off the computers at 10:30 AM.
As I understand your approach, you try to get in on the very first momentum move off the opening. Don't you find that this reverses very quickly and unpredictably at times? It has always seemed to me that buying the initial gap (up) was a tough play, but you seem to be making it work. I'll have to look into it again.
Good trading and thanks for this interesting journal.