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trading_strategies:gap_trading_strategies [2019/06/24 19:39] 127.0.0.1 external edit |
trading_strategies:gap_trading_strategies [2023/10/12 14:50] jayanthi [How successful is this?] |
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| ====== Gap Trading Strategies ====== | ====== Gap Trading Strategies ====== | ||
| - | ===== Introduction ===== | + | ===== What Is Gap Trading? ===== |
| - | Gap trading is a simple and disciplined approach to buying and shorting stocks. Essentially, one finds stocks that have a price gap from the previous close, then watches the first hour of trading to identify the trading range. Rising above that range signals a buy, while falling below it signals a short. | + | Gap trading is a strategy that exploits price differences between the closing price of one day and the opening of the next. These gaps can arise from news or financial events. Traders anticipate whether the gap will fill or if prices will continue in the direction of the gap. Ultimately, a trader would decide whether to go long or short a stock based on a particular gap trading setup. |
| ===== What is a Gap? ===== | ===== What is a Gap? ===== | ||
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| Although these are useful lists of gapping stocks, it is important to look at the longer term charts of the stock to know where the support and resistance may be, and play only those with an average volume above 500,000 shares a day until the gap trading technique is mastered. The most profitable gap plays are normally made on stocks you've followed in the past and are familiar with. | Although these are useful lists of gapping stocks, it is important to look at the longer term charts of the stock to know where the support and resistance may be, and play only those with an average volume above 500,000 shares a day until the gap trading technique is mastered. The most profitable gap plays are normally made on stocks you've followed in the past and are familiar with. | ||
| - | ===== How successful is this? ===== | + | ===== Best Practices for Gap Trading Strategies ===== |
| - | In simple terms, the Gap Trading Strategies are a rigorously defined trading system that uses specific criteria to enter and exit. Trailing stops are defined to limit loss and protect profits. The simplest method for determining your own ability to successfully trade gaps is to paper trade. Paper trading does not involve any real transaction. Instead, write down or log your entry signal, then do the same for your exit signal. After this, subtract your commissions and slippage to determine your potential profit or loss. | + | Simply put, gap trading strategies are rigorously defined trading systems that use specific criteria to enter and exit trades. Trailing stops are defined to limit loss and protect profits. Paper trading is the simplest method for determining your ability to trade gaps successfully. Paper trading doesn't involve any real transaction. Instead, write down or log your entry signal, then do the same for your exit signal. After this, subtract your commissions and slippage to determine your potential profit or loss. |
| - | Gap trading is much simpler than the length of this tutorial may suggest. You will not find either the tops or bottoms of a stock's price range, but you will be able to profit in a structured manner and minimize losses by using stops. It is, after all, more important to be consistently profitable than to continually chase movers or enter after the crowd. | + | Gap trading is much simpler than the length of this tutorial may suggest. You will not find the tops or bottoms of a stock's price range, but you will be able to profit in a structured manner and minimize losses using stops. It is more important to be consistently profitable than to chase movers or enter after the crowd. |