hey everyone thanks for checking out this video my name is Travis Rossum the
creator of the master the market education you can find link below in the
description and this is part 7 of the day trading stocks for beginners series
that I've been doing here on my channel so if you haven't watched the first six
parts in your brand new to the market I do recommend starting off with those
first but in this one we're actually going to wrap up this series and because
we covered all of the basics already such as you know the differences between
swing trading and day trading the differences between buying and short
selling we talked about different order types covered all of the basics of
technical analysis like is support and resistance we talked about some of the
basics of fundamental analysis and we covered some trading psychology I really
just want to finish off this series by giving you an actual trading strategy
one that is actually pretty well known and one that has proven success I know
actually a lot of investment firms and hedge funds use the same strategy
probably primarily for large cap stocks but I personally trade small caps and
I've had success with this trading strategy as well so anyway with that
being said let's go ahead and dive into it and we're gonna be talking about what
is known as a gap and go strategy now for those of you that follow me on
social media you know that I post a morning watchlist just about every
single day and on that list I have stocks that are gapping up and gapping
down and one of the ways that many people trade stocks gapping up is to
look for what is known as a gap and go and this is really just when a stock
gaps up in the morning and then continues to run once the market opens
so obviously because these are stocks going up these are going to make better
opportunities to go long and buy into them rather than try to short sell and
profit from them going down but on the other side of the spectrum there is also
a gap trading strategy that I've talked about in the past on my channel that
allows you to profit from stocks that gap up and then come straight back down
at the market open which of course is going to involve short selling but in
this one we're going to be looking for the winners we're gonna look for stocks
that are going to gap up and continue to run at the open in the way that we're
gonna find these stocks with the highest probability of a gap and go is by doing
some very basic technical and fundamental analysis now just to really
clarify what we're looking for here on the left side of the chart you can see
that the white dotted line at the bottom down here at 102 is where the stock
closed the previous day I mean this on the left side of the
with the gray background is pre market and after-hours trading and then once
the background turns to black here that's when the market opens for the day
and as you can see the stock gapped up pretty big this day and right at the
market opened it started to trend down and go lower and lower throughout the
remainder of the day now obviously this would have been a great stock to short
sell and profit from me coming back down but it's not going to be the ideal setup
for a gap and go and if we look over on the right side this is kind of the goal
when we're looking for a gap endo trade you can see that it closed the previous
day at about $2 per share and this day it opened up at about $4 per share so
without a huge gap up of about a hundred percent and at the market open they kind
of traded sideways and actually turned it down a little bit but once it found
some support and started to pick back up you can see that later on throughout the
day it had a huge run all the way up to over $9 per share so I want to show you
some of the things that made this stock a great candidate to become a gap and go
trade and then I'm even going to give you a strategy to use that will help you
actually buy into the stock because even if it fits the criteria that tells you
it may gap and go you still of course have to time your entry as best as you
can to get the best price for your position so anyway with that being said
the first thing that we want to see in order for a stock to be a great
candidate for a gap and go is first a good catalyst and this can be any kind
of news or press release released by the company that's going to have a big
impact on the company at least in the short term and the reason for this is
because if there's good news release that's going to create a lot of demand
for that stock and as we know a high demand and a low supply is going to
cause the prices in the stock to rise so going back to what we talked about just
a moment ago with the ones that we want to avoid the stocks that are gapping up
and then comes straight back down a lot of times if you look into the news and
you see what's causing the stock to gap up in the first place
it's going to be a pretty weak piece of news that's not going to have a
long-term effect on the company and that realistically is not going to validate
such a big gap up in the stock so you want to make sure the gap up is
validated by whatever kind of catalyst was released by the company and just to
give you an idea of what some of those catalysts may be for example a strong
earning support with growing revenues earnings per share
net profits decreased operating expenses and so on and so forth all of those
things in an earnings report can be a great sign for the company which in hand
is going to be a great sign for this stock at least in the near term as well
another catalyst that can have a big effect on the stock price is positive
trial results so if a company is working on some kind of drug or treatment and
they're doing trials to see how effective it is if they release positive
results for that trial that's going to have a big positive effect on the stock
some other things are partnerships or even quote unquote
trending catalysts and what I mean by that is for example if we take the whole
coronavirus situation that we have going on in the world right now we've seen a
lot of catalyst being put out lately by companies that are for example making
masks to help prevent the spread of the corona virus others are working on
vaccines and treatments for the corona virus and because that's such a big deal
right now and it's such a trending topic and a trending catalyst any kind of
catalyst that has corona virus in it as potential to have a big gap up in a big
run throughout the remainder of the day and that's going to lead us to the
second thing you want to see when you're looking for a gap and go and that's
going to be low float / low outstanding shares in other words this just means
that there is a low supply stocks with a low float have potential for major
intraday runs and actually if we take the example that we talked about a few
slides ago over on the right side the stock s gbx that stock has a total
number of outstanding shares of just one point one seven million shares which is
a very low amount in a very low supply there's really no set number for what is
considered a low float but really anything under 10 million shares has
potential to have a lot of volatility and can end up being a big runner
because there is a limited supply especially if you compare it to other
stocks with you know for example multi billions of shares but the moral of the
story is that the lower number of outstanding shares the more volatility
can be expected in that stock and the greater potential there's going to be
for a big gap up and a big run throughout the day
now you also do have to keep in mind that volatility does work both ways so
just because it's spiking up quickly with a low float doesn't necessarily
mean that it's going to continue spiking up or
all of its games so you do have to be cautious because you don't want to buy
into the top of a low float stock when it's spiking you want to make sure that
your timing your entries properly and using proper risk management as always
and again just to recap the stock s gbx this is really the ideal gap and go and
you can see over on the right side here this is the thinkorswim mobile platform
and you can see that there are 1.17 million shares outstanding and the way
that you get that on the thinkorswim mobile platform is by simply looking for
any stock and then going over and scrolling over to the right one slide
and it's going to have the number of outstanding shares right there and this
should be a pretty similar process regardless of which trading platform you
are using so anyway the third thing that you want to see when you're looking for
stocks with a high probability of a gap and go is that there is no recent
offerings and no recent dilution in that stock so if you don't necessarily know
what that means I highly recommend going back to day trading stocks for beginners
part 4 and that was the video in this series when I talked about fundamental
analysis and I explained how you can spot dilution and offerings in a stock
but to summarize that video offerings have the potential to drive the stocks
price down significantly and the reason for that is because offerings in their
simplest form create a significant increase in the supply of a stock so if
there's not a huge demand for that stock and there's all this extra supply being
added into that stock generally that's going to drive the stocks price down and
is really going to limit the potential for these stocks to have a gap and go
even if there is a good catalyst associated with the gap up in the first
place alright so when you're looking at stocks gapping up those are the three
things you want to see first in order for them to be a potential gap and go
now that leads us to the question when do you enter the stock because you don't
want to just buy into the stock randomly if it does meet those three previous
things that we talked about and that's where something that is known as the
opening range breakout is going to come in handy and is going to help us find
our entries on these stocks so the whole idea behind the opening range breakout
strategy is that you wait for the chart to build for the first 15 minutes at
least in this video we're going to focus on the 15-minute opening range breakout
but you can use this for 10 minutes even 5 minutes or something longer-term like
thirty minutes or even an hour but the idea behind it is that we're going to
let the chart form for the first 15 minutes and we're going to be looking at
the 15-minute chart so after the market opens once that first 15 minute candle
completely forms it's going to of course have a high and it's going to have a low
and you're going to look to use that high as a potential breakout and
depending on the range of the first 15 minutes you can even use the low of that
15-minute range as your risk level to cut losses if the stock happens to come
back down so just to give you an idea of what this is going to look like again
sticking with the same example here s gbx you can see that we have the first
15-minute candle completely formed up here and once you wait for that candle
to form you can go ahead and draw your lines to show where the high of that 15
minutes was and you can draw your line to show where the low was of that
15-minute period and the idea behind the opening range breakout is to wait for a
move above the high of the first 15 minutes so in this case you could see it
forms out high and then for a majority of the morning it seems to trend down
and it never really gets back up to that high until later on in the day so if
you're watching this and you were waiting for that first 15-minute candle
breakout you would probably want to avoid it all the way throughout the
morning until it gets back up here near the opening range breakout high and in
this case once it does breakout it continues to run all the way up to
nearly $13 per share later on in the day so this was a huge example and there was
a ton of money to be made on this opening range breakout but that's going
to lead us kind of to the next thing which again is managing risk so like I
said you can always use the low to manage your risk into country losses on
the trade but in this case if you look at the low the low is all the way down
there at about $4 per share so since we'd be buying the breakout up near $6
per share that's going to be a huge range to use to manage your risk in this
example and you don't want to be buying a stock all the way up at 6 if you know
that your risk level is all the way down that fork so another way that you can do
this is by looking for closer levels of support to use as your risk level
instead of using the low from the first 15-minute candle and if we take this
example here you can see early on in the morning stocks spiked up and seemed to
form some resistance like we talked about earlier on in the series past
levels of resistance can then become levels of support and vice versa is also
true past levels of support can then become levels of resistance so in this
case we have some resistance later on the stock breaks out above that
resistance and you can see that for three separate candles here on the
15-minute chart the stock held perfectly above that past level of resistance so
going forward you could then use that level of support as a potential level to
cut your losses if the stock does come back down so now instead of risking all
the way down to four you'd be buying at six and your risk would be a little bit
closer in this case it looks to be about four dollars and seventy cents you'd be
saving yourself seventy cents of potential risk by using this other level
of support okay so that's the idea behind the gap and go strategy and that
hopefully gives you an idea of one of the ways that you can look to buy into
this strategy obviously the opening range breakout is one of many ways that
you can buy into a stock you can always stick to the basics and just use levels
of support or a typical breakout / resistance it doesn't necessarily have
to be an opening range breakout but I really wanted to go a bit more into the
specifics on when you can buy stocks that are gapping up in an opening range
breakout is always a strong sign that a stock still has momentum and can be a
big gap and go candidate so anyway I hope you enjoyed this video and I hope
you enjoyed the entire series if you watched all the way through well I mean
if you did thank you for watching if you miss any parts they will be linked down
below in the description so you can go back and watch those if you enjoyed
please make sure to give this video a like and subscribe to the channel so you
don't miss out on future uploads even though this series is over I do have a
lot of other videos planned that I think are going to be very helpful and as
always if you want to learn step-by-step how to day trade swing trade and even
long-term invest as well as get access to our trading chat room with over a
thousand active traders in it you can find more information on that at my
website master the market which is going to be linked down below as well but
anyway thanks again for watching I hope you enjoyed and good luck with your
trading