Gap trading is a simple and disciplined approach to buying and shorting stocks that have a price gap from the previous close on a news catalyst. In my trading I focus on gaps with relatively high pre-market volume from the institutional players that are selling and buying these stocks before the market opens.
There are several gap trading setups that I utilize in my day trading (I call them my A+ setups). They include the following:
- Gap & Go Setup
- Gap & Reversal Setup
- Gap & Continuation Setup
Trading rules that help me execute my gap trading A+ setups:
- When there is no A+ set up, I wait. When it comes, I trade.
- As soon as I enter into a trade, I set my stop loss (not every trade is a winner)
- I place my stop losses outside the range of noise so I am only stopped out when my setup fails
- I never set targets – I let my winners run. However, I always adjust my take profit levels
- I scale into trades. Gap trading is very volatile in the opening minutes, hence I risk only a relatively small position. When the trades goes in my favor, I add.
- As my position starts to make profits, I constantly adjust my stop limit orders (e.g., take profit levels)
GAP AND GO EXAMPLES
GAP AND REVERSAL EXAMPLES
GAP AND CONTINUATION EXAMPLES