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TRADING STOCKS TACTICS

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Trading Gaps - Part 4

Trading Stocks Education - Trading tactics & examples




Morning Star Gap Reversal Guideline Requirements


  1. A stock that has a consistent trading range of at lease 1.75 points.
  2. Stocks that have a decent spread. Although a stock is often entered with an ECN, a trader does not want to be severely hurt by the spread. Stocks should also have an adequate number of market makers to allow for cushion.
  3. The stock should be down at least two days in a row before it becomes a consideration.
  4. Open of the current day MUST be in the top 25% of the day's price range.
  5. Close of the current day MUST be in the bottom 25% of the day's price range.
  6. Above average volume on the current day is preferable.


Next trading day's ACTION


  1. If the stock gaps up on the open (at least 1/2 point to one point) above yesterday’s closing price, buy it immediately. If a trader misses that entry, buy when it trades above its first one-half hour high. Market makers should be buying the stock as well.
  2. Stop/loss should be 1/8 to 1/4 below yesterday’s low.
  3. Look closely at the chart to determine an average and reasonable profit amount, or decide on a dollar amount that is reasonable for the stock and get out at that point. If the market and or sector remain strong and a trader is in very positive territory, the trader should hold it for the next day or two.

Morning Star Gap Reversal


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Evening Star Gap Reversal Guideline Requirements


  1. A stock that has a consistent trading range of at lease 1.75 points.
  2. Stocks that have a decent spread. Although a stock is often entered with an ECN, a trader does not want to be severely hurt by the spread. Stocks should also have an adequate number of market makers to allow for cushion.
  3. The stock should be up at least two days in a row before it becomes a consideration.
  4. Open of the current day MUST be in the low 25% of the day's price range.
  5. Close of the current day MUST be in the top 25% of the day's price range.
  6. Above average volume on the current day.


Next trading day's ACTION


  1. If the stock gaps down at the open (at least 1/2 point to one point) below yesterday’s closing price, sell it short immediately. If a trader misses that entry, sell it short when it trades below its first onehalf hour low. Market makers should be selling the stock as well.
  2. Stop/loss should be 1/8 to 1/4 above yesterday’s high.
  3. Look closely at the chart to determine an average and reasonable profit amount, or decide on a dollar amount that is reasonable for the stock and get out at that point. If the market and/or sector remain weak, a trader is in very positive territory and should hold it for the next day or two.

Evening Star Gap Reversal



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