The Gap Stock Trading Technique

The Gap Stock Trading Technique

My trading style consist of one search everyday after the markets are closed. I do a search of stocks that increased a minimum of 500% + above the average trading volume. From there I only look at the ones that were positive for the day. Then I check the charts of these stocks to see if they gapped up for the day. The gap up has to be bascially an all time high or a few years all time high. It is better if there is a base prior to these gaps. If it is uptrending that is ok. Then I check the news once I narrowed it down to see if there was postive related news. There must be positive related news. The news must be better than expected, highest quarterly earnings, or anything similar.

That is it in a nutshell folks. Usually, I start the day with about 50-70 stocks. Then it is narrowed down to 30 or so. Finally, after reviewing the charts I get anything from 0-4 that made the cut. Most days I recieve 0, which is fine because on the days I find something it is all good. If there is one I like and would buy; I try to put an order in for the next day. How long do I hold these stocks when I buy. I hold for a little as 5 weeks, but I'm seeing better returns in about 10 weeks. Once in a stock I watch it to see if it can hold a 10 DMA line. I won't sell unless it goes below the 50 DMA or if it goes down to fill the gap. Even if it is at the 50 DMA and I have some gain I'll hold till I find the next stock I think will be a winner. Although there are many different trading styles and techniques that have been used to great effect by many different ( sometimes very rich) traders, it is not really a good idea to keep on trying out different techniques for different stocks and just hope that "if it worked for them, it will work for me". To make a system successful you need to know what you are doing.

I do not mean that you need to understand it as it is written by the person that is giving you the information. I could easily red Bill Gates's story about how he had an idea and thought that it would work. I could follow every step that he did and make all of the same decisions, but would I make the same kind of profit that he has? I think that (although it is a nice idea), I would be lucky to break even. But why can I not replicate his success? Because the market conditions are different and what will work has changed. But even in the financial markets, just because someone has had success with a system, that does not mean that the same system will make you the same money. Although it sounds as though this should be possible, the facts do not bear it out. If it was this easy then everyone that read Warren Buffets book and applied it in the way that he does, would make the same amount of money. The reason that they do not is not the fault of the system, but of the choices that people make when they use the system and their reaction to the conditions that are prevailing in the market at the time. Most of the well known trading systems are well tried and work well. That is the reason that they are well known. After all if they did not work then no one would bother with them. But it does show you that there are many ways (with apologies to those of you with pets!), to skin a cat.

The reason that different traders are successful with different systems is because they have learned how to make a system work for them. The trading system that I use is not complicated and if you learn it well and how you can use it in reaction to market changes, then you can use it to make a great deal of money. It is a very simple system and because of that, there is less room for error. But you still need to get to know it and how it works, so that you are able to read the markets with these tools so you make the right choices.The system uses a search of the days trading as it's basis. Each day you need to make a search of the days trading and the stocks that have had the best increases. You need to do this after that market are closed so that you get a consistency of results that are not affected by the trading that happens after you have looked the stocks, when you are still researching others. So wait until the markets are closed and then start your research and then all of your results will be consistent.You need to do a search for stocks that grained at least 500% above the average trading volume of the rest of the market. Do not look at the stocks that were just under this or were close to it. Just look at the stocks that were 500% above the trading volume average. This will mean that you can get a good consistent result that you can analyze. From the stocks that you find, just look at the ones that were positive for that day. Make sure that you follow this carefully. If there is a stock that looks good, but does not fulfill this criteria then do not do not use it. If you are going to follow a system, then you need to follow it properly to make sure that it works and that you are not changing it by adding things that may affect the final answer.