What are gappers and how to day trade these gap ups? We see stocks, either the small cap
penny stocks or the large cap mid cap stocks gap up every single day due to PR news or
earnings reports. While there are tons of YouTube videos out there that teach you lessons
on how to trade these gappers technically, but I think it’s more important to understand
the “WHY”, or the psychology behind these gap ups, especially if you are a beginner
to day trading. Because not all gap ups are created equal, some stocks will sell off on
gap ups while others will run higher.
So in this video I’ll be going over how I analyze and trade gap ups on both penny
stocks and large cap stocks. I’ll show you How you can identify a long or a short set
up, and how to create a technical trading plan around it. So if that sounds like a strategy
you want to learn, make sure to hit that like button and subscribe for more videos like
this in the future!
So to start we will look at some recent small cap penny stock gappers. If you want to skip
the penny stock section and go straight to the mid and large cap gap ups. I’ll leave
a timestamp here.
So a recent small cap penny stock gapper that’s fresh from our memory was from Tuesday, which
is $RNN. This is another of those recent reverse split penny stocks. I believe they did this
on April 12. It was a 1 for 12 reverse split. That seems to have been the theme the last
few weeks. These sketchy companies do a reverse split, release some PR, and drive the share
prices up overnight. We’ve seen this recently on $OPTT and $ALDX, as I’ve mentioned in
one of my previous videos.
And that’s exactly what $RNN did. They released PR about a licensing deal in China early morning
on April 16th. Shares went up from 5 dollars close the night before to 9 dollars premarket.
That's a 80% gap up.
Now, a lot of penny stock chat rooms will be saying, the head line has the keyword “license”
, or “agreement”. So this is the stock we must buy for a break out higher. Well,
that’s generally not the case at all. These penny stock gap ups usually sell off and they
are some of my favorite short set ups. Why? Because of bag holders. Now you might be wondering,
what are bag holders? Bagholders are investors or buyers of a particular stock that’s been
stuck in the stock for months or years and unable to cash out, because the stock they
are holding has either just been losing money or diluting on their shareholders.
But how do you find these bagholders? Well, pull out the daily chart of $RNN. These are
bagholders. These are people who have been holding the stock and are invested since $84
dollars, or $7 prior to the reverse split price. All these people from the past few
years have been underwater. This is how I would recommend these stock charts by the
way, these are not just candlestick patterns or charts of a stock. These are people, participants
in the market. The stock market is composed of buyers and sellers. And you should be asking
who is in pain, especially when it comes to these penny stock companies.
And if we zoom into the more recent time frame on the daily. There was a huge gap down recently
in January 2019. And another one similar one from October 2018. So what's the story here?
Ask yourself who is stuck in here? Well, all the people who bought prior to October 2018
were stuck holding the bag. One day $RNN released PR in january that drove the stock prices
up to where the gap fill is. Why did it go up, because these are buyers who thought hey
the stock was finally at a discount, I want to buy low sell high, this is a buying opportunity
for potential profits. So those buyers who bought into the PR drove the stock price up
from $12 to $20. But the bag holders from before October see this finally as a time
to cash out at breakeven or at a smaller loss.
Finally those people got to get out of the stuck. Stock sold off near the gap fill price,
seems like this company also took advantage of the pump to do offering or dilute their
shares some more. That creates yet another huge gap down on the daily chart. This time,
remember the dip buyers I mentioned earlier that came into this stock to buy it at a discount
at around $12? Well those are the new bag holders underwater, along with the people
who didn’t sell their shares at break even when it was at $20. Now with all those people
underwater from prices higher than $10.
Just ask yourself, if you’ve been holding this stock for years and losing money, would
you continue holding or get out when the stock finally gaps up 80% one day. In this case
$RNN has so many bag holders on the daily chart above $10. Investors from years ago
have been stuck, the dip buyers from October and December have been stuck too, you bet
they have sell orders already set automatically, and they are just dying to get any of their
last remaining funds out of this stock.
So that's why the gap up on $RNN on April 16 had little to no chance of holding and
going higher. On the daily chart the gap fill price would have been around $11.50. Intraday
on Tuesday premarket the stock only went up to $9. First the news was fluff, anyone can
tell. And also, all the bag holders were just dying to sell their stock and get out.
And that is generally the case for a lot of penny stocks we’ve seen recently. Like,
$BPTH Which we will go over in a little bit. So we now know most of the penny stock gap
ups are short set ups. How do you plan out your trading plan technically? Well let’s
look at the intraday chart. RNN remarket on April 16 was hanging around $8.5 to $9. So
I would draw a line at premarket high and then premarket low.
So let’s look at the risk if i was shorting. The risk would be the break and hold of $9
premarket high. I don’t mean to just cover everything if the stock spikes to $9. A lot
of times these penny stock will spike to break the highs with buyers chasing and FOMO. But
they don’t hold. The ideal entry for me would be to scale in short starter at premarket
high and add to full size once the premarket low confirms and breaks. And I personally
prefer 10 min charts. Because it adds to my confirmation.
But if we look at the gap up short set up, it offers us really good risk reward. Because
you are risking 50 cents, to potentially make 2 dollars filling the gap. So that's good
risk reward. Of course you shouldn’t hold this short all the way down expecting it to
hit $5. You want to be covering in pieces along the way.
Next example is BPTH, I want to talk specifically about the gap up on Monday April 15. This
was a recent monster from March. And if you see on the daily chart. A lot of these people
were stuck in the high $40’s. And you bet these people are looking for any bounce to
get out of this stock. Especially when this run up was so recent. $BPTH ran from $8 to
$70 only a month ago. So on April 15 BPTH gapped up from $16 to $26. That’s a ten
point gap up. And you can already see the market hasn’t even opened yet the stock
was already selling off its gap.
So those are the penny stock gap up short set ups. But there are circumstances where
these penny stock gap ups will not sell off. There are certain criterias and catalysts
I look for when these gap ups hold and are actually great long setups. But I think that
will have to be a video on its own because it does take some time for me to explain all
the criterias i look for. So let me know if that’s something you’re interested in
down in the comments section below, and make sure to hit the like button while you’re
at it. If a lot of you guys want to see that penny stock gap up long set up video then
I’ll make that soon for all my audience.
So next I want to talk about large cap and mid cap stock gap ups. Because they are very
different from small cap penny stock gap ups. Some recent gap up examples I I want to talk
about are $DIS $JPM , and from this morning $JMIA.
For large cap stock gap ups, it’s important to look at the news catalyst of why it’s
gapping up. And then plan out your trade around. Generally speaking, if the stock gapped up
like $JPM with really good Q2 earnings report, or like $DIS, the stock gapped up to all time
highs after they released details and prices about their streaming service Disney plus.
These are real positive catalysts that will affect the company’s near term earning projections.
So if large cap stocks gap up with these news. I look to long the gap up. So for the gap
up longs on these mid cap large cap companies. I keep it very simple. Let’s pull up the
intraday $DIS chart. The premarket high was at $128. When it breaks I go long for two
points. The stocks, when it has really good news or earnings would hike really quick out
of the gate.
Again, think about the candlestick charts as the people playing the stock. These stock
charts are not just candlestick patterns, these are people in the market.
On $DIS stock, the investors, the funds fresh money want to get in on this company. The
good news was released yesterday. The opening the next day is the first chance these investors
get to enter. The stock is most likely going to hike up really quick.
Now if you’re not fast enough to get in and out quickly at the premarket high break
at the open, the first 10 minutes. The other option for a long is during the consolidation.
Again, if the stock has really good fundamental news, it most likely will not sell off the
gap up.
You can look to enter after the initial sell off at the open. In this case, $DIS stock
sold off from $130 to $126. I use the 10 min chart because it keeps me patient and confirm
the consolidation for me. Then you can ride it up from $127 to $130.
I love these large gap ups with solid fundamental news. Because when these stocks gap up and
hold. They offer some great follow throughs the next few days as a swing position as well.
You can see its the same set up intraday for $JPM. I played this along with $DIS using
the exact same gap up long set up. Again, really good Q2 earnings, really good guidance.
Solid catalyst. So I long the premarket high break from $109 to $111.
Next I want to look at mid cap large cap stocks that gap up and sell off. And I think the
perfect example is from this morning $JMIA. Also a recent IPO. While I don’t invest
in IPO’s like $LYFT. I like trading them either long or short. $JMIA is a tech company
offering an e commerce platform in Africa. If you look the daily chart. It was trading
around $27 dollars on April 15 to $43 dollars by the close on April 16. And premarket, which
is today. Im recording this on April 17. It was trading around $50 premarket.
Ok let’s think again about all the people involved in this stock. There are the investors
from two days ago who got in at $27. And there are also dip buyers, the swing traders who
got in yesterday at $40. The investors, they pretty much doubled their investment in 2
days. Thats like the fastest growing investment after bitcoin two years ago. When you have
100% ROI in two days, wouldn’t you want to sell and perhaps reinvest later on?
As for the swing traders, that’s me by the way, who got in the day before around $40.
You wake up the next morning premarket and see your position up $10. What would you do?
Of course I would sell. I would take my money and run. So you need to think of all the players
in this stock, do they have more incentive to buy more, or sell.
That’s why the $JMIA gap up was more of a short than a long. This stock gapped up
10 points overnight NOT because of fundamental solid catalysts like $JPM and $DIS. This stock
gapped up because it was a recent IPO and was hyped up.
So these are the day trading gap up strategies I personally use, both for penny stocks and
mid cap large cap stocks, you know the real companies. To summarize, when trading penny
stock gap ups, look for potential bag holders on the daily chart, look for SEC filings and
do some quick 10 min digging on these companies like I showed you in my other videos. And
short the gap fill. Again if you want a video on when to long penny stock gap ups, let me
know below.
For large cap stocks, if the stock gapped up overnight due to positive news catalyst
that will benefit the company earning in the near future. Look to long the gap up on premarket
high break, or long the consolidation after the stock proves that it can hold the gap
with the good news. If the stock gapped up huge like $JMIA $10 points overnight not because
of hype and not real catalyst , look to short the stock and gap fill on the way down.
Of course, always treat each set up not just as charts or patterns, but make sure you consider
the psychology behind the set up. Learning day trading patterns can only get you so far,
and not all gappers are created equal. Some are longs and some are shorts. You should
think about Who are the people in the stock or looking to get into the stock, do they
have more incentive to sell or buy more.
I hope you guys enjoyed this gap up long and short strategy. Leave me a comment down below
if you have any questions or requests for future videos. If this has helped you at all
make sure to hit the like button for me and subscribe. I would really appreciate it and
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