In this article, I want to focus on a specific type of gap, that I look for when I day trade. I call it the bearish gap and go.
What this gap needs:
A white candle on the prior day. {Meaning if you’re looking for gaps on a Tuesday, make sure Monday’s candle was bullish}
The stock to be gapping down (on the day you’ve found the gap)
The gap clearing a support price, pivot area, or demand level. [There is numerous terms for this but all 3 mean the same thing.]
I agree the “cleaing the pivot” is the most subjective part of the process and does take a little practice. I try and sum this up by asking the question “If I got into this stock recently, would this gap be hitting my stop forcing me to sell or become emotional?” If the answer is “Yes”, this is likely a good gap.
A more quantitative way to describe this: IF the gap is more than 3% but less than 18% and is opening below a price which the stock hasn’t traded past in more than 2 months.
Again, the ‘2 month rule’ can easily change if the gap is flawless, but it does take practice finding incredible gaps. Therefore, if you start with very rigid rules and then you begin to understand what makes an amazing gap, you can become a little more fluid with the numbers and expectations.
Once you have found the gap, there are various ways to play it. Depending on your experience level you could either:
- Take the break of the low on the 5 min candle
- Take the break of the low on the 3 min candle
- Take the break of the low on the 2 min candle
- Take the break of the low on the 1 min candle
I would encourage you to start with the bigger time frame if you are newer to this bearish day trading strategy.
What makes this play stronger is:
A white candle on one of the above time frames.
A high wave indecision candle
From there, set up the trade. Determine how many shares you will short per your risk…then, pull the trigger.
Below is an example of this set up on AEO recently.
YOU ROCK! Thanks for reading. Jerremy Alexander Newsome ~ CEO and one of 3 Real Life Traders who is about to embark on a 4 day water only
If you like what you see and you ever want to day trade with Jerremy, check this page out.!
