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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.