Traders from around the planet, I hope you are doing remarkable!
In this article I want to cover the simplicity of 1 specific type of gap. The bullish retest gap. And, we’re going to cover it on a swing trading level.
The reason I look for gaps is because gaps cause emotion and therefore, a higher probability of direction. That’s what I’m looking for in a swing trade initially; ‘did the stock gap’. The bullish retest gap is easy to spot. I am looking for a bullish candle that gapped up.
And bam. That’s it. Feel free to close the book on this one. I use these gaps on “normal stocks”. You know, the big names. AMZN, AAPL, TSLA, NFLX and so on. Realistically, this gap simply gives me an outlook of the sentiment.
The sentiment = traders bought the day before. How do we know this? Because there was a bullish candle. Anytime there is a bullish candle on any day, we know that someone in the world bought there. The stock closed higher than it opened, so that’s a bullish or “buying” day.
If the stock gaps up unexpectedly, those who bought on the previous day usually sell. This selling causes the stock to pause, rest, retest, or pull back. You can use whatever terminology here that you want. What’s important to understand is that at some point, the stock does retest the gap. Meaning, if you’re looking to get into the trade one could say “okay, this was a retest gap, I’m going to wait for a pull back before getting in”. Understanding these types of gaps massively helps understand the timing of entering a trade.
Below is a recent chart of TSLA showing you two retest gaps. And on both gaps, the stock did retest the gap, pulling back some, giving another (potentially better) entry then buying hours or so after the initial gap up itself.
This article might arouse some questions! I hope it does. Feel free to watch one of my more popular videos to gain a tad more insight into how I personally swing trade these gaps.