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Lazy Gap Trader Ebook 1 PDF
Lazy Gap Trader Ebook 1 PDF
EVERYTHING
YOU NEED TO KNOW
TRADING GAPS
This report is a summary for the gap trading strategy outlined in the accompanying
video based gap trading course.
All trading and investing comes with a high level of risk and you can lose money if
risk is not managed properly.
What is a gap?
The difference between the closing price and the following days opening
price of any market, stock, or other trading instrument.
Morning Gaps
Stocks that open much higher or lower from where they closed the prior
days session are known as Morning Gaps. These provide an enormous
opportunity for those traders that understand how to find and identify
the price level where these stocks should find at least a short term
support or resistance price where a trade can be taken from an expected
reaction. In the course, youll learn how to identify these price levels,
There are specific price levels where the Institutional traders are very
likely to support or distribute a stock. These price levels can be found
and calculated using simple mathematics. You will learn precisely how
to calculate these price points. In addition, youll also learn how to
identify the highest probability set ups and how to avoid the ones that
have a limited chance of success.
Can you imagine catching a low on a stock similar to the one depicted
below?
Its equally important to understand which stocks work the best with
these strategies, and which ones to avoid. If you understand the
characteristics of how a stock should fill its gap, then you can begin to
realize the profit potential these strategies afford those that wish to
profit.
Were focused mainly on the gaps that get filled in a short period of
time, although these strategies and techniques work no matter when
the gap is filled.
The numbers never lie. We know most gaps get filled. More
importantly, we know by mountains of historical data what the typical
price reaction of a stock or market is after it approaches the gap.
No matter how much product you take on, the large majority of the time
youre able to immediately turn a profit, and the few times you dont the
losses are very small and manageable.
For years youve been selling the same product line, from the same
supplier to the same customers day after day, month after month, and
so on, for years.
Theres no doubt you will see the similarities with Gap Trading.
If you can follow a system with a daily process for finding stocks that fit
the gap trading criteria, then applying rules to narrow the field to the
highest probability winning trades, then you can turn a system into a
profitable business.
This system is no different. You must apply the process, rules and
discipline to find success with gap trading.
We start with defining this version of gap trading. There are several
text book definitions and methods to trade gaps. Were going to discard
a large majority of those scriptures and focus our efforts on a narrow
segment of the market we know to be fruitful. (Let everyone else
continue to bang their heads trying to follow less effective strategies)
You may have heard terms like breakaway gap, continuation gap,
exhaustion gap and others. Block them out for now.
The Lazy Gap Trader 6
Were focused on morning gaps and gap fill. Were focused on trades
where we can scalp profits at a predictable and high probability, and
trades where we can hold for maximum profit by reducing our risk to
zero. (Yes, this exists while youre in a trade)
Gap window
When a stock opens higher or lower from the previous days close, that
price level becomes support or resistance. This will often become an
excellent trading opportunity when the rules are applied.
Gap fill
When a stock fills the open space left by the price jump or decline on the
day it gaped up or down.
Chart setup
Japanese candlestick charts work the best for this process. We have
the body of the candle where well find the open and close for the day
and the wick which shows any price extension of the high or low for the
day.
2. Next we narrow down the list to only the stocks were interesting
in trading. We immediately eliminate low priced stocks, no stocks
under $10 per share, preferably $20. We will not trade stocks
with average daily volume under 500 thousand shares. The
higher the better.
4. Now put all the stocks on a specific watch list that will constantly
be monitored and harvested for profit over the coming days and
beyond. Each chart will have an alert and trend line identifying
the buy or sell price level. Visuals work best. This becomes our
living gap fill list.
Tool Box
There are many useful tools that play an important role in analyzing
markets. Each analyst uses technical strategies that are important and
relevant for their work. For gap trading, we need just a few simple
ones. Youll use trend lines to draw a visual of where price needs to go
for you to get interested. A Fibonacci retracement tool, in some cases
will help to find or support the case for price objective. In the videos,
you saw how finding prior support and resistance or pivot points
enhances the probabilities your price level will work.
The concept is to keep it simple, follow the process and use only whats
needed. The more tools and analysis you do, the more uncertainty you
will create. Uncertainty will bring out your emotions and undoubtedly
limit your success.
1. Establish stop loss and profit targets for each trade. While its
not an exact science, there are rules of thumb that work well.
Using between and 1% of the current market price of the
stock has been a good guide as long as youre able to use some
discretion and avoid the greed factor. The lower the price of the
stock, the less of a reaction or bounce will occur off an
important level. Conversely, the more volatile a stock is the
wider range you can expect it to trade. These are the ones that
may require a little more rope on the downside if you can
tolerate the wait, but the higher volatility stocks will give you
more profit when they get going. For example if GE is trading
at $27 per share and gaps down 5% at the open which
represents a $1.35 move, we may only be looking for about a
$0.25 profit objective. However, if AAPL is in play, the
objective may be larger. In the Gap Trading course, you will
learn specifically how to determine what profit objective is
appropriate for each stock you trade. Maintaining a stop is
extremely important because a stock making large moves at the
open can travel farther than most people realize which can
result in a quick loss of capital. Sometimes, youre first loss is
your best loss. You must realize, we do not and cannot win on
every trade, but if youre win percentage is high enough, and
you have discipline in your money management, then youll be
a winner.
2. If a stock gaps above or below a target entry price for a trade, take
it off the table unless you have a secondary level of support or
resistance.
4. Not all trades will work out the way you dream, its part of the
business. This is a risk business and you must understand each
and every time you enter a trade you dont know exactly what will
happen, you are making decisions based on what you believe to be
the highest probabilities available. That never means 100%.