Here’s how I trade gaps
When stocks gap down, there are often
opportunities to buy cheap for a bounce as long as certain filters are in place.
A hammer candlestick is not enough to ensure followthrough on bounce attempts.
We like to use the 3 minute moving average charts and the stochastics. The first
thing that needs to happen is the 3 minute 5 period simple moving average needs
to base. This means the stock must close at least two candles above that level.
Secondly, we need the 3 minute stochastics oscillations to cross back UP. This
sets up decent momentum for a tightening bounce. The targets on the bounce are
usually the 3 minute 15 period moving average unless a stinky 5’s level or pivot
is before it. Once the 3 minute chart has tightened to the 3 minute 15, a make
or break will form. From there the 3 min stochastics may form mini pups which
sets up a trend reversal to the upside. This is another entry level if you miss
the original tightening entry.
This was the case when we played APSG long at 14.01. The 3
minute chart already tightened to the 3 min 15period ma from 13.19 to 14. We
didn’t take the initial bounce. Instead, we waited for the 3 minute to settle
and form mini pups to stabilize the 14 support. APSG 3 min mini pup gave nice
followthrough as 8 min stochastics crossed back up through 20 bands setting up
an 8 minute time frame channel tightening. We locked into the stinky 5s levels
14.55, out + .54.
Markets are feeling the end of summer doldrums as volume
should be light until Labor Day weekend is over. Filter tightly out there and DO
NOT OVERTRADE. Good trading gang!
Jea
Yu has been involved with the equities markets for over 10-years. He specializes
with intraday trading in the U.S. equities and futures markets. To receive a
free 7 day trial to Jea Yu’s Underground Trading Pit,
click here or call 888.484.8220, ext. 1.