Traderhead's Weblog

GAP Trade – Quick Checklist

• Gap should be below/above previous day’s high/low.
• What are the 20/50 MAs doing?
• Mark Support & Resistance, Trendlines
• Mark Gap High/Low
• Where are the Pivot Points?
• Is this is Trend break scenario or Trend Continuation scenario?

Scenario #1 - Price retrace’s immediately.

• Wait for retrace to resistance or gap high
• Stoch in extreme level
• 20/50 MA cross should have happened. If not, better to wait for next leg down, by which time MAs should cross
• Candle = Doji, Hammer, or Engulfing

Scenario #2 -  Gap down/up continues without retrace, see how far it is from MA

• If too far, wait for it to retrace close to 20MA
• Whipsaw risk is High, so -
  • Draw a bottom uptrend line during the retrace.
  • Anytime the bottom line is broken, enter on a retrace of the breakdown.
  • Again check the Stoch – Should be Overbought.
  • Again, enter on a Doji, Hammer, or Engulfing pattern
  • If none of the above happens, PASS on the trade
• If retrace doesn’t get close to the 20MA, wait for a consolidation zone to form
• Also, wait for stoch to become overbought
• Enter on a Hammer, Doji, or Engulfing Candle.