Learning all about trading gappers is an excellent way to get started in the business. You can ride the momentum of gappers, once you understand how to find the hot ones.
Most of the time when you may look at the gaps when they appear on the day trading chart, you may notice that during the before, within and after the gaps, there are lots of rapid changes that occur in most of the trades.
Most gap traders play with stocks when they see the trade is gapping up rapidly as they may fade the gap and keep shorting the stock until and unless the gap is filled and the prices are back the prior price.
Here are a few things you may need to know in detail:
What is the gap?
A gap is actually the difference between the closing and opening price range when there is no trade seen within a certain period of time. Traders identify the gaps and trade when they expect extreme highs and lows of the prices, i.e. volatility.
Working with a gap and go strategy
Gap and go strategy works when you identify the gappers showing more than 4 percent per day. You may identify the highs for pre-market sales and pick the 1 min first candle height for better profits. That is one way to implement the strategy. Once you learn to identify the best gappers, based on market conditions and breaking news, you can get more sophisticated.
As a day trader you may understand the gappers in the market and make use of it by identifying good gappers to apply the gap and go strategy or you may fade the gap and wait for the next highs. Due to the fact, you may see different types of gaps on the trade charts including the following:
Common gaps or common gapping can be seen when the stocks go ex-dividend and there shows no activity in the chart that is identified as a common gap. These are common, fill in quickly and may not provide any kind of exciting opportunities for the investors.
The runaway gas is worth noting because they appear when the trade faces higher than usual prices, it continues and show a positive sign for the traders. The runaway gap is also known as the measuring gap.
Breakaway gap results when the prices go beyond the trading range and fill in the traders with all the excitement of an increased interest in trades. This kind of gaps are identified as a good sign for gap traders and may result in more volume and interest for any of the trades showing breakaway gaps.
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