Lesson 8

Stock Day Trading System

Gap Up News Scalp (GUNS)

Copyright © Adam Khoo 2017. No unauthorised duplication. All rights

reserved
 Gap Up News Scalp
The Gap Up News Scalp (GUNS) is a day trading strategy that buys stocks
gapping up on a news catalysts with strong relative volume at the 1-5 minute
candle interval and exiting once a 2R-2.5R profit is realised.

The trade usually takes place within the first hour of the market open
(9.30am-10.30am EST) and last for approximately 3-10 minutes.

Gap Scanner
Gap Up News Scalp

1 Minute chart

Profit target
Buy
Stop loss
 Gap Up News Scalp
1 minute candle

Profit Target

Buy

Stop Loss
 Gap Up News Scalp

What is Required?
• Charts with Live streaming data and extended hours data (pre market) (I use
both thinkorswim.com charts and interactivebrokers.com charts)
• Traderworkstation with ‘hot buttons’ (I use www.interactivebrokers.com) for
fast trade executions
• Minimum US$25,000 account to avoid Pattern Day Trader rule. Alternatively
trading with CFDs or a non regulated broker (www.suretrader.com)
• 2 or more monitors preferred
• Fast reaction time (you need alot of practice for this)
 GUNS Tradestation Setup on Interactivebrokers

1) GUNS News Tab

Day chart, 5 min chart, company news, watchlist

9, 20 EMA
50, 200 SMA
Volume bars
 GUNS Tradestation Setup on Interactivebrokers

2) GUNS 5 Minute Charts x 4

9, 20 EMA
50, 200 SMA
Volume bars
 GUNS Tradestation Setup on Interactivebrokers

3) GUNS 1 Minute Charts x 4

9, 20 EMA
50, 200 SMA
Volume bars
 GUNS Tradestation Setup on Interactivebrokers

4) GUNS 1 Minute Charts x 2

9, 20 EMA
50, 200 SMA
Volume bars
 GUNS Tradestation Setup on Interactivebrokers
5) GUNS TRADE
Day Chart, 5min chart, 1 min chart, Level 2, Scanner

9, 20 EMA
50, 200 SMA
Volume bars
Setting Up a GUNS Scanner
Setting Up a GUNS Scanner
 GUNS Chart Setup on thinkorswim
I similarly create the same chart templates on thinkorswim.com and I run
it on a different computer/monitor
This is optional but my personal preference.

9, 20 EMA
50, 200 SMA
Volume bars
My GUNS Trading Setup
 GUNS Daily Preparation Overview
• 9.00-9.25am Prepare Your Watchlist of 4-6 Stocks

• Find Stocks gapping up pre-market at http://thestockmarketwatch.com/markets/

today.aspx, Interactivebrokers GUNS scanner or Trade-Ideas scanner
• Criteria for Watchlist
• Price $1.50 or more, Pre-market volume at least 30,000
• Strong catalyst (earnings beat, FDA approvals, analyst upgrades, clinical trial pass.
Avoid acquisitions or other low impact news)
• Low float (< 100m. 10m-20m ideal)
• Ideal Day Charts and Pre Market Charts (5 min)
• Draw resistance levels at Pre Market Highs and Daily Chart Moving average
resistance
• From Pre Market Chart (5 min), decide on the potential trade setup to take (setup
1,2,3 4,5?)

• 9.25-9.29am Prepare Your Trader Workstation

• Place orders for stocks you intend to trade once market opens (Setup 1,2, 3)
• Focus on the 1 Minute charts once market opens
• Take a deep breath and wait for market to open at 9.30am (Eastern Time)

Copyright © Adam Khoo 2017. No unauthorised duplication. All rights

reserved
 GUNS Preparation- Watchlist
• 9.00-9.25am Prepare Your Watchlist of 4-6 Stocks
• Find Stocks gapping up pre-market at http://thestockmarketwatch.com/markets/
today.aspx, Interactivebrokers scanner or trade-ideas scanner
• Criteria for Watchlist
thestockmarketwatch

Interactivebrokers GUNS scanner

 GUNS Preparation- Watchlist
• Criteria for Watchlist
• Price $1.50 or more, Pre-market volume at least 30,000
• Strong catalyst (earnings beat, FDA approvals, analyst upgrades, clinical trial
pass). Avoid acquisitions or low impact news
• Low float (< 100m. 10m-20m ideal)
catalyst before
market opens

News can be found on Float can be found at

1) interactivebrokers -> GUNS News Tab 1) www.Finviz.com
2) www.Finviz.com
3) thinkorswim.com -> Live News

Copyright © Adam Khoo 2017. No unauthorised duplication. All rights

reserved
 GUNS Preparation- Watchlist
• Criteria for Watchlist
• Ideal Day Charts: Bullish Day charts or stock gapping up above moving
averages and resistance levels. Draw all potential resistance levels

Ideal Day Chart

gap open • Gapping above 9EMA, 20EMA,
50MA and 200MA
• Gapping above major
resistance levels
• Big ‘window’ towards next
moving average or resistance
level
• Price at a pullback after strong
impulse (not overextended)

gap open
 GUNS Preparation
• Criteria for Watchlist
• Ideal Pre Market Chart (5 min)
• Price is above moving averages
• Consolidating near pre-market highs
• Draw a resistance level at ‘Pre Market High’

Pre market high

Ideal Pre Market Chart (M5)
• Price consolidation within 20% of
pre market high
• Price above 9, 20, 50EMA
• Ideally, price should not be
overextended
• Preferred if the stock has not
already ‘run’ since after hours
session the day before.
Acceptable Pre Market Charts (5 Min)
 ‘Not As Nice’ Pre Market Charts (5 Min)
They could turn up good setups after market opens though…
 GUNS Entry and Exit Setups

From Pre Market Chart (5 min), we decide on the potential trade setup to take

• There are Five Valid Setups for GUNS Strategy

• Setup 1: Enter the Break of the Pre Market High (M5)(9.30am Entry)
• Setup 2: Enter the Break of the Pre Market Pivot (M5) (9.30am Entry)
• Setup 3 Enter New high of the Pre Market Bull Flag (M5) (9.30am Entry)
• Setup 4: Enter On The First Bull Flag Pattern (M1, M2, M5) (9.30- 10.0am Entry)
• Setup 5: Enter On the Break of the First 1 Min Candle (M1) (9.31am Entry)

For Setup 1-3, We place orders before the market open

For Setup 4, 5, We place orders after the market opens

Copyright © Adam Khoo 2017. No unauthorised duplication. All rights

reserved
 Setup 1: Enter the Break of the Pre Market High (9.30am Entry)
When: Pre market price is consolidating very near the Pre Market Highs

1) Entry
• Buy Stop Limit Order above Pre Market high
• Stop 1 cent above Pre Market High. Max Limit 3-5 cents above Stop Price
2) Stop Loss
• Sell Stop Order 10-50 cents cents below entry
3) Take Profit
• Sell Limit 2R to 2.5R above entry
4) Trade Management
• Watch M1 candle and shift SL to Entry once 1R profit reached

Pre market 9.30am Market Opens

Stop loss Placement
M5 Less than $20: 10-15 cents
$20-$30: 15-20 cents
pre market high Entry $30-$50: 20-30 cents
$50-$100: 30-50 cents

OR look at the 1ATR for the 1 minute

candle

Copyright © Adam Khoo 2017. No unauthorised duplication. All rights

reserved
Setup 1: Enter the Break of the Pre Market High (9.30am Entry)

Pre market high $29.01

M5

Sell Limit $29.51

M1 Buy Stop Limit $29.01, $29.06

Sell Stop $28.81
Setup 1: Enter the Break of the Pre Market High (9.30am Entry)

Pre market high $3.96

M5

Sell Limit $4.22

M1 TP 4.22
Buy Stop Limit $3.97, $4.00
SL 3.87 Sell Stop $3.87
Setup 1: Enter the Break of the Pre Market High (9.30am Entry)

Pre market high $97.94

M5

Sell Limit $98.71

Buy Stop Limit $97.95 $98.00

Sell Stop $97.65

M1
Setup 1: Enter the Break of the Pre Market High (9.30am Entry)

Pre market high $6.94

M5

Sell Limit $7.20

Buy Stop Limit $6.95
$6.98

Sell Stop $6.85

M1
 Setup 2: Enter the Break of the Pre Market Pivot (9.30am Entry)
When: Pre market Price is consolidating near a pivot point and pivot point is more than 1R
from the pre market high
1) Entry
• Buy Stop Limit Order above Pre Market Pivot
• Stop 1 cent above Pre Market Pivot. Max Limit 3-5 cents above Stop Price
2) Stop Loss
• Sell Stop Order 10-50 cents below entry
3) Take Profit
• Sell Limit 2R-2.5R above entry
4) Trade Management
• Watch M1 candle and shift SL to Entry once 1R profit reached

Pre market 9.30am Market Opens

Stop loss Placement

M5 Less than $20: 10-15 cents
$20-$30: 15-20 cents
pre market high $30-$50: 20-30 cents
$50-$100: 30-50 cents
Entry pre market pivot
OR look at the 1ATR for the 1
minute candle
Setup 2: Enter the Break of the Pre Market Pivot (9.30am Entry)

Pre market High

Pre market Pivot $70.90

Sell Limit $71.65

Buy Stop Limit $70.90, $70.95

Sell Stop $70.60

 Setup 3: Enter New high of the Pre Market Bull Flag
When: There is a Pre Market Bull flag and 1R can be reached before hitting pre market high
1) Entry
• Buy Stop Limit Order above last pullback candle
• Stop 1 cent above last pullback candle. Max Limit 3-5 cents above Stop Price
2) Stop Loss
• Sell Stop Order below pullback candle or 10-50 cents below entry
3) Take Profit
• Sell Limit 2R-2.5R above entry
4) Trade Management
• Watch M1 candle and shift SL to Entry once Pre market high (i.e. 1R ) is reached

Pre market 9.30am Market Opens

pre market high Stop loss Placement
Less than $20: 10-15 cents
M5 1R $20-$30: 15-20 cents
$30-$50: 20-30 cents
Entry
$50-$100: 30-50 cents
OR look at the 1ATR for the 1 minute
candle

Bull Flag Pattern

1. Strong impulse (Bullish Candles moving up sharply) followed by…
2. Inside bar or pullback candles (making a series of lower highs)
3. The bull flag pulls back above the 9EMA-20EMA for support
Setup 3: Enter New high of the Pre Market Bull Flag

Pre market high

at least 1R away
Buy stop limit

sell stop
Setup 3: Enter New high of the Pre Market Bull Flag

Profit target

Buy stop limit

sell stop
 Setup 4: Enter On The First Bull Flag Pattern (M1, M2 or M5) (9.30-
10.30am Entry) After Market Has Opened
Bull Flag Pattern
1. Strong impulse (Bullish Candles moving up sharply) followed by…
2. Inside bar or pullback candles (making a series of lower highs) with lower volume
3. The ideal bull flag pulls back to the 9EMA-20EMA for support
4. Entry point is when a new high is made after the pullback candle/inside bar
 Setup 4: Enter On The First Bull Flag Pattern (M1, M2 or M5) (9.30-
10.30am Entry)
1) Entry
• Enter once a new high is made after pullback candle or inside bar
• Buy stop (1 cent above high) limit (5 cent above stop) order above high of pullback
candle or inside bar
• Before hitting ‘buy’, check the ‘spread’ and any potential close resistance (i.e. pre market
high, moving average on daily chart or big seller on level 2)
2) Stop Loss
• Sell Stop Order 1 cent below last pullback candle
3) Take Profit
• Sell Limit 2R to 2.5R above entry

Previous High
Important points
• Entry is ideally above 20EMA
• Pullback should be less than 61.8% of
the Impulse
• Avoid stocks with wide spreads (more
than 10 cents) and minimum $0.05
intervals
• Ensure entry is not less than 1R below
Pre Market High or any resistance
levels
 Setup 4: Enter On The First Bull Flag Pattern (M1, M2 or M5) (9.30-
10.30am Entry)

4) Trade Management
• Shift SL to Entry once 1R Profit Reached or when ‘previous high’ reached
(whichever comes first)
• Exit trade when a big seller is seen on the ‘Level 2 Ask’. This acts as
‘resistance’

Previous High

Important points
• Entry is ideally above 20EMA
• Pullback should be less than 61.8% of
the Impulse
• Avoid stocks with wide spreads (more
than 10 cents) and minimum $0.05
intervals
• Ensure entry is not less than 1R below
Pre Market High or any resistance
levels
 Setup 4: Enter On The First Bull Flag Pattern (M1, M2 or M5) (9.30-
10.30am Entry)

• Setup 4 requires the use of ‘Hot Buttons’ pre-configured on your Trader

Workstation
• These ‘hot buttons’ allow you to enter a trade (pre-set Buy-stop-limit,
pre-set order size, pre-set stop loss and pre-set target price within an
instant!)

Hot button
Click to instantly buy
stock at 25 cent stop
loss distance
Setup 4: Enter On The First Bull Flag Pattern (M1, M2, M5) (9.30-
10.30am Entry)
M1

Profit Target

Buy Stop
Price ideally bullish once market opens Limit Order
(Bullish Candles above EMAs) Stop Loss
Setup 4: Enter On The First Bull Flag Pattern (M1, M2, M5) (9.30-
10.30am Entry)
M1

Profit Target 2.5R

Profit Target 2R

Buy Stop Limit Order

Stop Loss

Price ideally bullish once market opens

(Bullish Candles above EMAs)
 Setup 4: Enter On The First Bull Flag Pattern (M1, M2, M5) (9.30-
10.30am Entry) M1

Profit Target 2.5R

Profit Target 2R

Buy Stop Limit Order

Stop Loss

Price ideally bullish once market opens

(Bullish Candles above EMAs)
Setup 4: Enter On The First Bull Flag Pattern (M1, M2, M5) (9.30-
10.30am Entry) M1

Profit Target 2R

Buy Stop Limit Order

Stop Loss

Price ideally bullish once market opens

(Bullish Candles above EMAs)
Setup 4: Enter On The First Bull Flag Pattern (M1, M2, M5) (9.30-
10.30am Entry) M1

Profit Target

Buy Stop Limit

Stop Loss
Setup 4: Enter On The First Bull Flag Pattern (M1, M2, M5) (9.30-
10.30am Entry)

M1

Profit Target

Buy Stop Limit

Stop Loss
Setup 4: Enter On The First Bull Flag Pattern (M1, M2, M5) (9.30-
10.30am Entry)

M1

Profit Target

Buy Stop Limit

Stop Loss
Setup 4: Enter On The First Bull Flag Pattern (M1, M2, M5) (9.30-
10.30am Entry)

Strong impulse Profit Target

Pullback candles
making lower highs

Buy Stop Limit Order

Stop Loss

Lower volume on pullback

Setup 4: Enter On The First Bull Flag Pattern (M1, M2, M5) (9.30-
10.30am Entry)
M5

Profit Target

2R = 0.80
Buy Stop Limit

1R =0.40
Stop Loss
 Setup 5: Enter the Break of the First 1 Minute Candle (9.31am Entry)

Entry Requirements
• The First 1 Minute candle is a bullish candle that closes above the moving averages
• The First 1 Minute candle is not too big (relative to the size of its normal candles)
1) Entry
• Buy stop (1 cent above high) limit (5 cent above stop) order above high of 1 minute candle
• Before hitting ‘buy’, check the ‘spread’ and any potential close resistance (i.e. pre market
high, moving average on daily chart or big seller on level 2
2) Stop Loss
• Sell Stop Order 1 cent below 1 minute candle
3) Take Profit
• Sell Limit 2R to 2.5R above entry
9.30am
Pre market high
= Potential resistance
1R
Buy Stop Limit
First 1 min candle
Stop loss

Pre market Market Opens

Copyright © Adam Khoo 2017. No unauthorised duplication. All rights reserved
 Setup 5: Enter the Break of the First 1 Minute Candle (9.31am Entry)

4) Trade Management
• Shift SL to Entry once 1R Profit Reached or when ‘a resistance level is
reached (e.g. pre market high, moving average resistance on daily chart)
• Exit trade when a big seller is seen on the ‘Level 2 Ask’. This acts as
‘resistance’
Setup 5: Enter the Break of the First 1 Minute Candle (9.31am Entry)

Profit Target 2R

Buy Stop Limit Order

Stop Loss

First 1 minute candle

- Bullish
- Closes above EMAs
Setup 5: Enter the Break of the First 1 Minute Candle (9.31am Entry)

Profit Target 2R

Buy Stop Limit Order

Stop Loss

First 1 minute candle

- Bullish
- Closes above EMAs
 Watching GUN Scanner When Market is Open
• Sometimes the watchlist of 4-6 stocks we created pre market may not
lead to any valid setups
• I look at the GUN Scanner to see new stocks that appear when the
market is open
• For example, on 16 July, CALI appeared 9.32 am (2 mins after the
market opened)… a Setup 4 trade appears

Buy stop limit

$0.25
Stop loss

\
 Watching GUN Scanner When Market is Open
• Profit Target of 2R is hit….

ProfitTarget

$0.50

Buy stop limit

$0.25
Stop loss

\
 Reading Level 2 Quotes
• For GUNS Day Trading
• When trading setup 4 and setup 5, I look at Level 2 quotes to help me
decide whether or not to enter a trade and to also help decide if I
should exit a trade early
 Reading Level 2 Quotes
BIDs ASK
Buyers making offers Sellers Posting ‘for sale’

Spread Bid-Ask Size 1=100 shares

add 2 ‘zeroes’
Highest
bids on top Highest
Asks at
Bottom

When you buy, you can buy at the ask price (market), bid price or in between
When you sell, you can buy at the bid price (market), ask price or in between
 Reading Level 2 Quotes
When I enter a long trade, I want to see
1) Tight spread between bid/ask (less than 10 cents)
2) Prices between bids are close (e.g. 7.23, 7.22, 7.20 etc…)
3) Large bids are placed. These act as ‘support’ levels
4) No large Ask are placed. These act as ‘resistance’ levels
 Reading Level 2 Quotes
I may exit a trade early when I see…
1) A large Size Ask above the current price and before I can reach my
target price and small bids below current price
however… A large size ask combined with large size bids to absorb the
shares is fine
 Lesson 8
Stock Day Trading System
Gap Up News Scalp (GUNS)

Copyright © Adam Khoo 2017. No unauthorised duplication. All rights

reserved
RAD S4 M1 (Earnings - 2.5R )
26th Sept 2019
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AZN S4 M1 (Upgrade : 2.5 R )
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 BMY S4 M1 (2.5R )
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EP TP

SL