Staples Inc. (SPLS) is one of my favorite trading stocks because it always seems to gap and trade very nicely.
As a gap trader I am continually on the hunt for stocks that are gapping against the broader market. For example, on March 6, 2014 SPLS was gapping down on earnings. The gap down broke through prior demand at $12.59. This gave the stock a chance to potentially move into the next area of demand which was at $11.15. The stock opened at $11.87 and had a target of $11.15 giving it a potential of being a low risk, high reward setup.
Let me show you how I traded this gap down and how I called it live to my Trading Room I moderate.
• Entry Short $11.90
• Stop 12.02 (Over High of Day)
• Potential Target of $11.15
Once you have trailed out into a definable target like SPLS you can begin to look for a bounce to take it on the flip side. I prefer to trade in the direction of the gap than after its hit a definable target where it should hold look to take it in the other direction for more profits.
The key is to know the higher timeframe demand and supply levels to measure your trade for entries and targets. Then after a range is set between those two levels you can play the range.
