Simple Strategy

E

El Cazador

It seems like every night I review at least a hundred charts and most nights I note that if, at 10 AM, I had shorted those stocks that gapped up I would have made a nice profit. Conversely, if I had went long at about 15 minutes after the open on most stocks that gapped down I would have done quite well on those too.

It seems like about the most reliable thing I see. Anyone out here ever tried just fading the gaps? If so how'd you do at it? Thanks

~EC
 
Interesting...how are your stops compared to the potential gains? Regarding gaps I like to focus on so called "momentum gappers". I will only trade the stocks with the strongest gap and volume. Gaps down will not necessarily be bought. It all depends on the recent behavior of these gappers. I first found out about these strategies at www.momentumtrader.com. For some recent examples go to : http://www.daytradingcoach.com/content_sample.html I don’t want to get into detail here, cause you might already be familiar with this approach, but let me know if you would like to find out more.
 
Dang. I was hoping nobody would notice. I've been shorting the 10-11am high (approx.) on the Q's for weeks now. I keep pinching myself to make sure I'm not dreaming.
 
Think maybe I should delete this before EVERYONE catchs on, Nicodemus? :confused:

~EC

PS Jens: I'm just considering playing QQQ and SPY when the entire market is gapping. Thanks for the links.
 
Some basic things I watch for on the 2 most typical gaps, a common gap and a breakaway gap.

Common gap - Normally forms from some general market news, like an economic report, etc., that creates short-term hype around the open. If you look to the left of the gap on a 3-min or 5-min chart, and there is price history, that gap will many times fill in the first hour, and is a good "fade" candidate. It may not fill the entire gap, but normally at least halfway.

Breakaway gap - Normally forms from "company-specific" news like an earnings surprise, new product, S&P addition, etc. If you look to the left of the gap on a 3-min or 5-min chart, and you see NO price history to the left of the gap, this is a bad "fade" candidate. The stock will usually hold the gap by not printing below the first print of the gap on a gap up, and vice versa on a gap down.

Hope this helps,
Chris :D
 
I had some success buying one of the top 5 percentage gap-downers, which were usually 6-12%, placing my orders at 9:35am consistently. Held them until 3:30 or until they made 4%. Set my stop at cost. Did one a day for 25 days, $4k positions, $1552 profits before trading fees - $62avg/day, 16 wins $120avg - 9 losses -$41avg.
This type of trade can move REAL fast so you have to be quick. Real risky.
 
Rigel,

If you set your stop at cost, how did you have 9 losers? Slippage only? Please explain because otherwise that's a pretty darn good ratio of winners/losers!
 
The price action would change directions. It takes time to get into a position and time to get out. Popping up order screens, entering passwords, the time it takes to be filled. A stock can turn on you and go 20-30 cents against you before you can get out of it. One time I just used a market order to get out and there was one of those dogone down-spikes and my order executed 50 cents below the price that was current when I started entering my order. The price was only down there for a few seconds and then popped right back up to where it was before. Including trading fees I lost about $100 on that one. What I did after that was to use sell limit orders to protect myself from those spikes. The first time I used them happened to be one of those times when the price drops like a rock. I entered a limit of 5 cents under the current price, fingers flying over the keyboard, but by the time my order went live the market price was below my limit, so the order didn't execute. I had to enter a password to cancel the limit order that wasn't going to work and then enter another limit order at a nickel lower. The same thing happened again, the "last price" was lower than my limit by the time my order hit the market. I had to cancel that one and enter another order. This happened four times in a row so finally I just entered a market sell order and got rid of the stock. I think I lost about 30 cents a share on that one, with trading fees I lost somewhere around $65. My trading fees cost me $20/ round trip. Because I wanted to be consistent and enter my trades at exactly 9:35am I could only do one trade a day, and even if I had of entered two or three positions I would have had to be able to manage them all, no way. They can really move fast in the first half hour. I decided that my skill and/or my trading software were just not up to the task. The whole deal was just to volatile and unpredictable, too fast. The problem was time. It takes time to get into and out of positions.
Here are a few trades I did. I think it the dates, etc are correct.
HAIN 5/11/01 net +$302.00
JCOMA 5/14/01net +$97.00
BRCD 5/15/01 net +$14.00
NCBC 5/16/01 net -$75.00
PPDI 5/24/01 net +$61.20
AREM 5/25/01 net -$23.54
CTLM 5/29/01 net +$140.27
JNIC 5/30/01 net -$109.14
CTXS 5/31/01 net +$50.02
PHCC 6/01/01 net +$186.49
TUTR 6/05/01 net -$39.84
Hope this helps, maybe you can do something with it.
PS- I only entered the trade if the price was moving upwards.
 
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