Gap Trades – Buy and Sell Signals
Gap Up OpeningGap Down Opening
Sell Short on stop2 tics below thishigh . Exit at stoploss or on market on close.
SELL SIGNALBUY SIGNAL
Buy on a stop 2tics above thislow. Exit at stoploss or on market on close.
(Reprint of December20, 1993 Article*)
A Day-Trader’s Dream
y years as a trader have convinced me thatthe more input a trader has in the formationof a trading decision, the more likely thatthe decision will be wrong. While this may notsound right, the fact is that it IS right. Traders cannothelp but have their wishes, emotions, expectations,fears and dreams interfere with decisions. Hence, themore a trader thinks about aTRADE, the more a trader“analyzes” a trade, the greaterthe probability that the tradewill be a loser. I do not meanto denigrate the importance of the trader, yet the facts are thefacts.Unless you’re an exceptionaltrader, you’ll find that themore you spend in thought, theless you reap in profits!Traders don’t need complicated systems, they needsimple systems that don’t require a GREAT deal of judgement or thought. This is especially true of day-trading methods.Some day-traders are addicted to their quote screens,watching every tick as if their lives depended on it.And unfortunately it often does! My point of view isthat if you want to sit and watch every price tick youought to just buy or lease an exchange membershipand trade from the floor.I believe that day-trading should be a simpleproposition, reasonably mechanical, and as objectiveas possible. This is the day-trader’s dream.
The GAP TRADE is a method which fits all of theimportant requirements of a day-trader. I wasoriginally introduced to the GAP TRADE by LarryWilliams who deserves all of the credit for it. Larrycalled it the OOPS signal for reasons which I’llexplain later. I call it simply the GAP TRADE.The rules of application aresimple indeed. But beforedeatiling them I’ll definewhat I mean by a GAP. Inthis case we are dealing withan OPENING GAP which isthe first condition for enteringa gap trade.
OPENING GAPHIGHER (GAP UP).
Thisoccurs when the openingprice for the day is HIGHERTHAN THE HIGH OF THE PREVIOUS DAY.See illustration above. By the “opening” I meanthe first “print” price or the officially definedopening as determined by the given exchange.
OPENING GAP LOWER (GAP DOWN).
This occurs when the opening price for the day isLOWER THAN THE LOW OF THEPREVIOUS DAY. See the illustration above.By the “opening” I mean the first “print” price orthe officially defined opening as determined bythe given exchange.The opening GAP UP sets the precondition for aSHORT SALE and the opening GAP DOWN sets theprecondition for a BUY.