hey my friend thank you for watching this video on trading gaps for daily
profit this is Barry burns with top dog trading and let's jump right into it so
training gaps is one of those classic techniques that everybody learns
normally right at the beginning of their trading career and it's a very very
popular way of trading it's very appealing in the sense that it looks
easy at first glance and it also is one of those things that doesn't work as
well as it used to and it doesn't work the same way as it used to work but
that's not surprising because it is so popular
anytime anything becomes popular guess what that's raid about the time it stops
working everybody knows about it everybody starts trading it and guess
what most people lose money so once everyone starts doing something it stops
working you've got to have an edge by that I
mean you can't be doing the same thing everyone else does so here's the classic
pattern that people are always looking for so we've got one day here by the way
these are California times down here and this is a daily no it's a three-minute
stock chart and so you've got your open way down here and the previous day
closed way up there in the easy way for trading gap trades gapped reading
strategies gap trading intraday gap trading rules whatever is to just say
okay I'm going to trade it back into the close of the previous day in Japanese
candlestick patterns by the way they also traded gaps and they call it
closing the window so it's really nothing new to the Western world the
Japanese were way ahead of us on that so they said okay windows open and now it's
going to close all righty that's great any yep that's fun when it happens but
it's not the way it normally happens anymore I'm sorry they never make it
easy for us to do it do they okay but obviously it's still that happens
sometimes and there is an example now let me show you what happens most of the
time these days here's another example and if you were
you say alrighty we closed here this day and we opened down here this day and I'm
just going to trade the gap clothes right away
you'd be a sad little puppy because it didn't close right away in fact let's
watch this whole day see how it closes when it closes all right so we think
well okay I'll just treat it later in the day and the day ends there's the end
of the day and it still didn't reach the gap close there's the line right there
so one of the questions when it comes to technically how to trade this is alright
where do we put the line so if we're looking for the gap to close now
technically you would say we should do it at the previous day's close because
that is literally closing the gap it closed at one price one day and then it
opens at another price another day and you're waiting for it to close or get
back to the close of the previous day that's not the best way to do it the
best way to do it in my opinion is to look for the little low there and that's
just a more conservative way to trade it because I've seen many times where if
you put it at the close or the last bar could be a green bar and it may be the
close would be up there then and the markets are not that perfectly neat and
tidy and so they're kind of messy and they're messy because you've got
millions of people all over the globe trading and teen different things
different time frames and so forth so don't expect it get to the exact penny
pip tick or pixel on your chart that you wanted to get to allow for that
messiness would be conservative and place it at the lowest low there and
wait for it to come back into that level ok so now that we have established that
technique here's the other thing that I want to share with you after at the
market gaps quite often what happens is it goes kind of sideways for most of the
day in fact yeah so what happens there you go big move
down with our nice gap boom okay and goes all the way on actually
goes all the way down to there in the first three minutes so from there to
there in the first three minutes what happens the rest of the day not a whole
heck of a lot of anything alright it just kind of goes sideways that is what
normally happens now that is the norm that is what you will see more days than
not and remember trading is about trading probabilities and we never know
what's going to happen there are no certainties so we're trading
probabilities and this is the probability scenario and part of the
reason logically is because after the market has a big move down and remember
this is not showing any pre or post market data because if you show pre and
post-market data you won't see the gap so there's been trading that's going on
over an eighth day or early in the morning before New York opens and now so
what's happened is a bunch of people shorted and when the market opens open
outcry and most people are looking at their charts they're saying hmm dang I
don't know I've already missed out on that big of a move so whatever I want to
do do I want to go short now I mean the dominant direction is down but I already
missed out on all that so psychologically the Masters are saying
I'm getting in too late on the other hand the sentiment is bearish so some
people are thinking gap and ghost some are gonna buy thinking that the gaps
gonna close and you've got this conflict so you've got people on both sides in
the bottom result is that after gaps quite typically on a daily or a intraday
chart the market really just doesn't go anywhere just kind of goes flat for the
rest of they it's usually not a great trading market for the rest of the day
so here we go and it's a several days down the the pike here about three days
later and we get another gap so from there to there do we get a gap close if
you're gonna trade the gap closed maybe you even wait for the peak there to come
back down nope sorry you are not going to get it the whole day goes by and they
does not ever close so what does happen well just what I said
gaps up and now we've got conflicting views in so therefore the market goes
sideways for most of the day it finally does go up but again goes up in the
afternoon after lunch actually so if you are going to look for a market move
after a gap usually it's going to be after lunch and that's exactly what this
is this is one o'clock New York time ten o'clock California time and where does
it go it goes back to this blue line hey wait a minute what's that blue line well
that blue line if we scroll back that's where this gap started so the gap does
close eventually this gap that we just showed but it closes not the same day
there's day one and I'm gonna scroll through faster the two nope
day three yes yes so it took three days for that gap to close therefore what I
recommend is that you do put these levels on your chart and make them
something unique like a different color or whatever color you want that you know
means something to you but just that you don't use for anything else so you might
use something that stands out you're not gonna use it for other support
resistance levels so let's say when they use goldenrod okay and we're going to
make it a little thicker so it really stands out and that whenever I see that
line with that thickness I know oh wait that's where a gap close would occur and
it is acting like almost like a magnet really that yes the markets are very
aware of gaps the masses are aware of gaps no question about it and for that
reason they do tend to have a self-fulfilling prophecy so I put it on
there but I don't expect us necessarily going to fill in the first day or even
two might take three I take more oh in fact what the heck let's look further
let's take that puppy off of there and let's look in some further examples here
so here we get another gap from there to there that's the open and that doesn't
close there's your gap from the previous day okay so that one doesn't
close and we do not close that day let me just put the line on there again make
this clear for you so there I would put it there see now this day we closed here
but I wouldn't put my line there I'm gonna put it down here just to be
conservative right so then now look what happens this is cool let me ask if
that's all in one chart you can see this so we gapped down this day we don't fill
that gap that day again notice how the market kind of just goes sideways for
you know most of the day then the next day the gap fills but you don't really
have a chance to take the trade for the gap fill because it gapped up into the
gap fill so it gets down and then it gets back up into the gap fill well
great no opportunity to take that trade unless you were treating overnight again
we get the same dynamic here that I was talking about a pretty good gap up okay
goes up and then what's it do for the rest of the day just kind of go sideways
sorry not really anything exciting to do if you didn't want to do something and
be in the afternoon take that little move there so now this level it's not
only a gap closed but it is a support levels the market bounces off of it
comes back again as support in bounces back off of it alright goes back on up
and let's see there we go get another one good fact we got two more so let's
look at these real quick I've got a gap up market again it doesn't really go up
much from there it goes kind of sideways does not fill the gap next day gaps up
it's a gap and go goes up but again what most of the day after reaches its high
it's just going sideways the afternoon you get your movement where it breaks
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