For those who day trade: GAP OPEN STRATEGY

The Gap-Open Stock Trading Strategy

What is a Gap Open?
A gap open is when the opening price of a stock is above (gap up) or below (gap down) the previous evening's closing price.

Gap Up at the Open Trading Strategy

Like any system, method, tactic or strategy, its not 100% reliable, but applying the following criteria significantly reduces the risk of playing gap opens.

Ideally, the stock should gap above the previous day's high. It is better if it has gapped 5% one direction or the other. The stock should be a relatively strong stock that is in an up trend and/or rebounding off significant price support or a major moving average (like the 50-DMA or the 200-DMA).

Once the stock has gapped open to the upside in the morning, short the stock down to the previous days' close. You can then set your stop loss above the opening price. If the stock tumbles, the ideal situation occurs when the break above the 1st half-hour's high happens several hours after the 1st half-hour of trading (mid to latter day). The opposite is true when the stock gaps down. You would BUY the stock and close out the position when it reaches the previous days' closing price and set the stop loss below the low of the gap-down price.

Even better, should the "gap open" take the stock from below to above a significant moving average like the 50-DMA or 200-DMA, consider it a very bullish sign and therefore an extremely compelling play.


Here's another link: http://www.tradingday.com/c/tatuto/morninggapstrategies.html

GOOD LUCK TRADING.
JD