Intra day traders / Swing Traders often face difficulties in entering the market when there is a gap open. But the gap need not destroy your trading plan. You can do a quick analysis, adjust your trading strategy and get into a good position well after the crowd pulls the trigger on a gap play. Here is how.
Let the index/stock trade for the first fifteen minutes and then use the high and low of this “fifteen minute range” as support and resistance levels. A buy signal is given when price exceeds the high of the 15 minute range after an up gap. A sell signal is given when price moves below the low of the 15 minute range after a down gap. It’s a simple technique that works like a charm in many cases.
If you use this technique, though, a few caveats are in order to avoid whipsaws and other market traps. The most common whipsaw is a trading range that lasts longer than 15 minutes. If an obvious range builds in 20, 25 or even 30 minutes , use those to define your support and resistance levels. Also consider the higher noise level in the morning. A breakout that extends only a tick or two can be easily reversed and trap you in a sudden loss. So let others take the bait at these levels, while you find pullbacks and narrow range bars for trade execution.
Lessons in Technical Trading.
thekirkreport.comtalks about mistakes in trading.
The report asked a question from its subscribers: “what is the most important thing you’ve learned about investing, trading, and/or the markets?”
Some of the lessons learned were:
- Success takes longer than expected
- That you must learn to trade and trust yourself and not to become so dependent on the opinions of others, which ultimately keeps you from becoming the best you can be
- The very best profit opportunities occur in the midst of extreme emotional sentiment
- Persistence and dedication to a daily routine is key
- Developing an edge is the first step for trading successfully. Without that, disciplined trading will only make sure you gradually losing money
- You have to respect the market even if you think it is under some kind of manipulation
- Anything can happen. Trading is all about probabilities
There is more in the report which was mentioned earlier.
Dennis Gartmangives a set of trading rules. The basic themes are:
- Capital comes in two varieties: Mental and that which is in your pocket or account. Of the two types of capital, the mental is the more important and expensive of the two. Holding to losing positions costs measurable sums of actual capital, but it costs immeasurable sums of mental capital.
- In bull markets we can only be long or neutral, and in bear markets we can only be short or neutral. That may seem self-evident; it is not, and it is a lesson learned too late by far too many.
- Try to trade the first day of a gap, for gaps usually indicate violent new action. We have come to respect “gaps” in our nearly thirty years of watching markets; when they happen (especially in stocks) they are usually very important.
- Trading runs in cycles: some good; most bad. Trade large and aggressively when trading well; trade small and modestly when trading poorly. In “good times,” even errors are profitable; in “bad times” even the most well researched trades go awry. This is the nature of trading; accept it.
- Keep your technical systems simple. Complicated systems breed confusion; simplicity breeds elegance.
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