Trading gaps is a 50-50 chance for profit

[cashmoney69]

I've been collecting charts of stocks that have been gapping for probably 6 months or more trying to figure out how to trade them, but unfortunately, it seems like its nothing more than a 50/50 chance of really being able to make a profit on these set-ups Nihabashi, if you're reading this, maybe you can comment because I know you do a lot of volatility analysis.

Take a look at this daily chart for Hillenbrand Industries. Both gaps are to the upside, but both have different out comes.

On the 2nd gap on the chart, if you shorted on the 1st red candle following the gap day, five days later, you'd make 3.73 a share profit. Not bad for a weeks work!!.

I find these gaps all the time and I think of going long/ short, but right now, if I were to do this, it'd be nothing more than a guess.

Does anyone trade gaps successfully???

Thanks

cm69

 

[jficquette]

First gap was off a bottom. Second was not. Go check the news for those two days. See what the difference was.

If you can't find news from that far back find recent events on any stock and compare the news.


John

 

[insider trading]

You can add to the odds with a few filters and money management imo

 

[NihabaAshi]

Quote from cashmoney69:

I've been collecting charts of stocks that have been gapping for probably 6 months or more trying to figure out how to trade them, but unfortunately, it seems like its nothing more than a 50/50 chance of really being able to make a profit on these set-ups

Nihabashi, if you're reading this, maybe you can comment because I know you do a lot of volatility analysis.

Take a look at this daily chart for Hillenbrand Industries. Both gaps are to the upside, but both have different out comes.

On the 2nd gap on the chart, if you shorted on the 1st red candle following the gap day, five days later, you'd make 3.73 a share profit. Not bad for a weeks work!!.

I find these gaps all the time and I think of going long/ short, but right now, if I were to do this, it'd be nothing more than a guess.

Does anyone trade gaps successfully???

Thanks

cm69

First of all, don't make the mistake of assuming a profitable an upGAP trader is looking for a GAP to short or a downGAP to go Long as a GAP Trader.



The best GAP traders have rules in place to tell them when to go Long off an upgap, go Short off an upgap, go Long off a downgap or go Short off a downgap.

Thus, too many traders are one dimensional in there approach to trading GAPs via always looking for a GAP fill.

Can you explain the details of your GAP strategy an in your entry signal especially since your using a daily chart???

Also, can you post a intraday chart of both of those GAP days because your answer is there.

I'm interested to see where the volatility showed up on those intraday charts...that will tell me which direction a trade should have been placed (short or long) regardless to the fact its a GAP.

Thus, have you tried looking at GAPs as a profit target (if trade is in the direction of the GAP) instead of as a possible entry signal?

Hopefully, the above paragraph doesn't confuse you.

Mark
(a.k.a. NihabaAshi) Japanese Candlestick term

 

[cashmoney69]

Quote from NihabaAshi:

First of all, don't make the mistake of assuming a profitable an upGAP trader is looking for a GAP to short or a downGAP to go Long as a GAP Trader.




Can you explain the details of your GAP strategy an in your entry signal especially since your using a daily chart???

Also, can you post a intraday chart of both of those GAP days because your answer is there.

I'm interested to see where the volatility showed up on those intraday charts...that will tell me which direction a trade should have been placed (short or long) regardless to the fact its a GAP.



Mark
(a.k.a. NihabaAshi) Japanese Candlestick term

"First of all, don't make the mistake of assuming a profitable an upGAP trader is looking for a GAP to short or a downGAP to go Long as a GAP Trader."

I dont, which is why it seems like a 50/50, because it could do either.

"Can you explain the details of your GAP strategy an in your entry signal especially since your using a daily chart??? "

I dont have a strategy, it's been a LONG time sinse I traded a gap..once I can predict direction better, I'll give it a shot. Just wondering, why do you use the word "especially"...is swing trading a gap, not a good idea?


"Also, can you post a intraday chart of both of those GAP days because your answer is there.

I'm interested to see where the volatility showed up on those intraday charts...that will tell me which direction a trade should have been placed (short or long) regardless to the fact its a GAP."

Here is BKS (Barns and noble) and IMP (some other company) on the 60 min charts. The thing that I dont like about intraday charts on GAPS is because a gap could easily gap higher or lower the next day, making S/R on a intraday chart not too helpful.

the news on the stocks are this:

BKS: Lowered their outlook for 07
http://stockcharts.com/h-sc/ui?s=BKS&p=D&yr=0&mn=4&dy=0&id=p21011395105


IMP: Is raising dividends from .15 to .16
http://stockcharts.com/h-sc/ui?s=IMP&p=D&yr=0&mn=4&dy=0&id=p21011395105

which I dont understand....dividends are GOOD..why is the stock falling lower?..and the outlook for BKS was bad...why are people buying??..

 

[cashmoney69]

..scottrade is being gay right now, I'll post the other chart when it decides to work.

------- admin, can you move this thread to "trading"?