Download Trade School: Gap Day Trading Nick Fosco May 28, 2010

TRADE SCHOOL:
GAP DAY TRADING
Nick Fosco
May 28, 2010
THE ULTIMATE DAY TRADER
Jacob Bernstein:
Chief Market Analyst, Daily Sentiment Index
Copyright: March 2009
GENERAL

Trading structure

Setup, Trigger, Follow-Through (STF)
Emotions are underlying engine of day trades
 Intra-day moves are news driven
 Gaps occur as emotional response to:

Political and other Market news
 Corporate earnings
 Other events


Traders use gaps to identify weakness or strength
WHY GAPS WORK

Two types of gaps
Opening Gap Up (short setup)
 Opening Gap Down (long setup)


Work because:
Market makers & Professional trade into gaps
 Go short on up gaps and long on down gaps


Success Rate:
Winning Percentage: 74.9%
 Profit factor: $W/$L = 1.3
 Payout Ratio: W/L = 10.45

GAP SET-UP

Buy Set-up

Opening price is LOWER than prior day LOW
H
H
C
L
O
L
GAP SET-UP
Sell Set-up

Opening price is HIGHER than prior day HIGH
H

O
H
C
L
L
GAP TRIGGER

Buy Trigger

Price retraces ABOVE than prior day LOW
H
H
C
L
O
L
GAP TRIGGER
Sell Trigger

Price retraces BELOW prior day HIGH
H

O
H
C
L
L
FOLLOW-THROUGH

Exit at end of Day


Exit following Morning


Can automate – Stop sell order at End of Day (EOD)
Increase profits by selling on follow-through gap (FTG)
Mix exit

Exit 50% and EOD and 50% on FTG
FINE TUNING

Gap size


Gap Volume


The larger the gap, the larger the trading range &
probability of success
Lower volume mean less commitment and more likely to
retrace
Gap fill speed

Fast retrace indicates higher probability of continued
retracement
LET’S FIND SOME

Load up trading platform and look to from group
suggested stocks.