Hey everyone thank you for checking out this video lesson my name is travis rose
full-time day trader and investor and i'm the creator and founder of the
master the market trading educational website that you can find linked below
in the description and i wanted to make a quick video lesson here to talk about
one of the morning strategies that i use to trade stocks that are gapping up
every single morning in the small cap market so this is gonna work best again
for small caps anything really below fifteen dollars per share um it's gonna
be ideal I personally prefer anything in the one to five dollar range but then
again this can of course work for higher priced stocks as well so first and
foremost I want to give a little bit of information about some of the basics and
since we're talking about gaps we need to know what a gap is in the first place
so a gap is going to be caused by a significant move in extended hours
trading whether that be after hours work free market usually due to some kind of
news catalyst and some very common news catalysts that can be released often
causing stocks to gap in either direction whether it be up or down our
earnings reports trial results a company buyout a new patent that the company has
for you know one of their products and so on and so forth so something like
this is going to be released nine times out of ten in after-hours or a free
market trading they're usually not going to do it
within the middle of the day while the market is open and because of that that
usually causes a stock to make a significant move again in extended hours
trading and because the extended hours is not shown on your daily chart when
the stock opens the next day that's going to leave a big gap in either
direction on the daily chart now one of the ways to trade these is of
course to look for an opportunity to buy into a stock that's gapping up and look
for a momentum trade but the way that I personally like to trade it is by
looking for an opportunity to short sell so for those of you who do not know what
short selling is it is a trade type that actually allows you to profit from the
stock going down rather than up so you still want to buy low and sell high just
like you would with any other investment the difference though when your short
selling is that you want to simply sell high first and the way this works is
when you place an order to short sell that's gonna request to borrow shares
from your brokerage of that stock and then you can sell it at ideally a higher
price hopefully from there the stock price will go down and you can buy back
those same shares return them to your broker and either profit or leave the
difference between where you sold and where you bought and the reason that I
prefer to short sell these stocks that are gapping up is because again I'm
focusing mostly on penny stocks or small cap stocks and a majority of the time
penny stocks are gonna be very weak stocks in the long run so if you look at
the longer-term charts of a small cap stock you can see that just about every
single time they spike up or every single time they have a big gap up due
to some kind of news being released they usually end up giving back all of those
gains and coming all the way back down to reality because at the end of the day
the news that's being released isn't enough to change the overall company
itself so the company is still going to be very weak in the long run and because
of that the stock is going to be weak in the long run as well so when it's
gapping up like that it usually offers us a great opportunity to short sell at
higher prices before the stock comes back down to reality okay so when
trading penny stocks that are gapping up generally you're gonna have a much
higher chance of profitability from short selling rather than buying and
that's at least in my experience the way that I personally like to trade now I'm
not saying that you can't make money of course from buying stocks but at the end
of the day the data simply supports the fact that penny stocks generally come
back down after they have a strong move up okay so the way that we look to short
sell these stocks is you can't just find stocks that are gapping up in short sell
them at any price and hope for them to come back down in order for you to
profit you want to look for something on the chart some kind of technical
analysis to give you an idea of where you should actually enter into that
short position and one very simple way to do this and this is actually probably
going to sound a little bit too simple for it to actually be true and for it to
actually work but I promise you I've made thousands and thousands of dollars
with this very simple strategy and I actually know many other professional
traders that use just this one strategy alone to trade stocks full time and what
that is is we're going to look for a level of resistance on the chart to
short sell into when these stocks are gapping up so first and foremost just to
give you an idea of what resistance is if you're a brand new to the market
resistance is going to be a price level we're historically a stock has a
difficult time breaking above this is caused by a greater amount of
supply and demand and because we know the market is run solely by buyers and
sellers your buyers of course being the demand and your sellers being the supply
when there's a greater amount of sellers or supply out of level resistance then
there is buyers or demand that's going to cause the stock to fall from that
price so we can actually look for these resistance levels on our charts and use
them as a great opportunity to enter into our short positions and profit from
the stock going down from there so to summarize this very simple
strategy is to look for stocks gapping up in free market again ideally in the 1
to 10 even for up to $15 range per share then you're gonna want to at least make
sure that you check out the news because if it is a very strong catalyst and a
very strong piece of news then you know that the stock may be stronger
throughout the day and you may be a little bit more cautious to short sell
the stock after that you want to go onto your
daily chart and you want to look for previous spikes or previous gaps up on
the chart and use those days to draw resistance lines on your chart and then
you're going to use those same reasons lines on the daily chart or your entries
on your short position when you're looking at the stock on your intraday
timeframe so if you're looking at the one-minute the two minute two three
minute five minute and so on and so forth you're going to see the stock move
into those same resistance lines and you're gonna look for weakness at them
as an opportunity to short sell so just to give you an example of this if we
look at the chart here on the top you can see that's the daily chart and then
down on the bottom is the same stock but the one-minute chart now if I go ahead
and exit out here so I can point out to you what I'm talking about you can see
that on this day the stock spiked up a little bit just to about 1:15 a little
bit below um and then a few weeks later the stock again spiked up right about to
the same level this time to about one dollar and twelve cents and that's gonna
cause a level of resistance so you can draw outline there and use it as a
potential opportunity to short in the future when the stock spikes up into
that level okay if we draw another one you can see that right about here the
stock goes to about a dollar per share again right here and again right here so
that's going to be another potential level of resistance now if we look at
the one-minute chart at the bottom you can see that on this particular day
which is this candle here on the daily chart the stock is actually gapping up
above that one dollar resistance so in this case this is not going to be a
potential level to shorten to because the stock has already over that
resistance level when the market is opening so in this case we would look
for the 112 to 113 area to shorten to the next level of resistance and as you
can see right here at the market opened the stock actually spikes up and it's
perfectly into that resistance at about 113 before it fades all the way back
down into the 80s so on this one trade alone there was potential to make well
over 20% return on your investment and you know just a few hours of trading so
like I said I know it seems very simple but at the end of the day there's really
no need to over complicate your trading when there are
simple lines of support and resistance that can cause some significant profits
for you so if you enjoyed this video and are
ready to learn more make sure to go to the links in my description to enroll in
my day trading courses starting at only $10.99 learn more and even enroll in my
full mentorship program where you're going to learn step by step how to
become a profitable day trader you can even view the link to open a funded
trading account where you're going to have the opportunity to trade with an
investment firms money even if you have no prior market experience and below
you'll also find my email which is 10% trader at gmail.com so if you have any
questions or concerns about anything in my description or anything discussed
within the video feel free to reach out to me there and I will gladly help you
with that but without further ado thanks for watching make sure to subscribe good
luck with your trading and I'll see you in the next video