Trading Gaps and Breakouts (Stocks)

Knowing what stocks to look for and finding them often proves to be very difficult for traders. I tend to look at a few things. First of all for the stocks which have gapped up at the open and are holding above their open price. Generally if these gapping stocks do not fill in the first several minutes of the day they will offer at least a scalp. I also look for stocks that have gapped down and are not rallying, instead continue to work near their lows. Throughout the day I also pay close attention to the % gainers and % losers on the day. Because strong stocks tend to get stronger, and weak stocks tend to get weaker, this is often an excellent list to be watching for intraday continuation patterns.

I have known Jeff Semmel since 1998 when he started sending out a daily scan list. Over the last few years that project has significantly evolved. We are currently working with Jeff on a joint project @ www.tradingscans.com that has a number of daily and intraday scans for swingtraders and daytraders. Some of the most useful scans for me are those I can use intraday to find the gaps and % gainers and losers.

Brandon
 
Here is a trade I had this morning.

Feb24C.gif


This is just about the closest thing to a perfect short setup intraday that I think you would find. On the open C gapped down sharply and in the first several minutes of the day was a member of one of the weakest sectors and was one of the weaker stocks in it. It was also the third weakest stock (as based on % change since its OPEN) in the day. Citi made absolutly no attempt at all to fill in its gap, this is a stocks way of screaming that it is weak and you should keep an eye on it to give you a setup. Setups occur when a stock has a chance to rest, in this case with the bear flag. The setup occured as the stock broke the bottom levels (support) in the flag.

Brandon
 
MER is not showing anything positive, so going to go ahead and close it. One of the good things about being short the weakest stocks is that even if you are proven wrong, you don't have to lose much. It really keeps the edge in your favor.

Brandon
 
Should add a second section to this thread on multiple timeframes. To me it is really one of the keys to keeping losses small and gains bigger. Here is a chart from today

Feb24nd.gif


Above is the chart of the Nasdaq100 from a short given. It was a short under 1007.5. As you can see on the 15 minute chart (top) we were getting a bit of a head and shoulders topping pattern. This shows us that the momentum is shifting in the larger timeframe. Once you see this you want to go into a smaller timeframe and look for a reason to get into the that trade. Once you have found it you are working with the risk in the smaller timeframe, but the reward is found in the larger one. Obviously not a bad position to be in. 1+1=2.5.

Brandon

PS. Seems like I am talking to myself..not much back and forth, not even daniel saying I suck..do I need to call the whitecoats to come get me again?
 

PS. Seems like I am talking to myself..not much back and forth, not even daniel saying I suck..do I need to call the whitecoats to come get me again?

I love your posts. But there is not much to comment about. The setups are very clear, I am learning a lot. :D
 
Quote from opw:


PS. Seems like I am talking to myself..not much back and forth, not even daniel saying I suck..do I need to call the whitecoats to come get me again?

I love your posts. But there is not much to comment about. The setups are very clear, I am learning a lot. :D
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I too have picked up a couple of ideas from this thread so I have found it useful. Like it was said everything you have talked about has been fairly clear.
 
I read your posts and I am sure many others do also.

I like playing gaps and appreciate you taking the time to post your thinking on them and other techniques, no matter what your reasons.

Don
Anyone who opposite opinions are good just keep the personal slams out. We're not stupid and can follow and test before trading anything.
 
IBM1.gif



Above is a chart of the trade given this morning in IBM. The stock gapped down nicely on the open and did not fill in its gap but instead continued to move lower. When this occurs the stock is sending a strong signal that it will remain weak. A stocks natural tendancy is to fill in its gap, when it can not do that the opposite is much more likely. As IBM rested we got a small bear flag setup that allows us to take our shorts. The trade setup and continued in the right direction the entire time we had it.

Brandon
 
[11:30] <brandon> 11:30:57 DAY TRADE: (Based on daily and intraday setups. Hold = sev. min. to sev. hrs. Gen. Guide: Partials at S/R as risk zone is covered. B/E on rest until target at next S/R. Closed by EOD) SHORT SETUP NQ under 972. Stops above 975.

Will watch this one cautiously. There are really no setups at all on the long side, an abudance of them on the short. This always makes me nervous. APPB is the closest thing to a nice buy I see, am watching that.

Brandon
 
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