You can see on my charts here the strategy I like to use on these gap down
stocks is to wait... [CUT]
This trading strategy works really well in the fear-driven
market environment right now! However you need to understand these 2 key factors.
In the current fearful market conditions right now with all the surprise
headlines popping up every other day I'm sure we've all seen these kind of nasty
overnight gap downs and overnight gap ups. In this video I'll be sharing a
trading strategy that I've been personally using on these overnight gaps
whether it's an optimistic gap up to the moon or a gap down back down to earth
Which we all see way too often this year. So, we gotta learn how to
profit from this strategy with these overnight gap downs many traders who are
still new and inexperienced would simply say forget it i'd rather go work at
mcdonald's instead but the more experienced traders would be able to
tell the difference between these stocks and still able to profit from other
people's emotions in the market and they'll still hit up mcdonald's after
the market closed anyways these trading strategy videos do take me a long time
to make so if you enjoy this content and want to learn more please make sure to
watch until the very end for my step-by-step tutorial on the strategy
and don't forget to smash the like button i really appreciate it alright
there are two key factors to this gap trading strategy the first one is based
on short term technical analysis and that is whether we see a gap up or a
gap down overnight all right for those who are not familiar with this term an
overnight gap refers to drastic increase or decrease of the stock's trading price
during the pre-market sessions compared to the previous day's closing price
let's look at this example here dash door dash stock you can see in the
previous day's closing price on this day the stock closed around 75 dollars up
here now the next morning overnight you can see the stock gapped down all the
way down to around 69 68 pre-market so that means the stock has sold off
gapping down 10 overnight generally speaking a technical gap down like this
one is not enough to indicate whether the stock going to rally higher or going
down lower but in this specific case on dash stock this is still a valid short
strategy and we're going to explain why later on
now that we understand what's a technical gap down it should be very
easy to understand what a gap up is looking at the stock tdoc teledoc aka
one of the many bag holding positions i mean disruptive investments at arc
invest you can see in this example tdoc the previous day's closing price was
over here around 38 dollars and 70 cents now the next morning the stock had
gapped up pre-market to around forty dollars and forty cents that's almost a
two dollar per share overnight gap up or a five percent gap
as you can see this setup overnight is very different from our previous example
of a gap down on dash stock so for tdoc this overnight gap up even though it's
purely technical in the current market environment this does set up for a night
short for this gap trading strategy so on this tdoc specifically i was looking
at a 40 to 41 dollars area for short entries and looking forward to break
down some pre-market support and eventually to gap fill all the way down
to prior days close where it came from at
38.70 i personally messed up on this trade as
you can see here on the chart i was right on a short thesis for this gap up
strategy however just off on the timing and unfortunately i couldn't hold on
long enough to see the stock eventually break down
but the strategy thesis was correct you can see i traded the same strategy on
all these stocks in the past before such as d-wack
nvidia and amd now you must be wondering but shea this
is not what you said last year last year many gap ups have broke out higher a
good lungs and all the stones went to the moon well it's now 2022 and the
market is ever-changing the sentiment is much different now unless you want to
end up working at mcdonald's stop buying breakouts nothing wrong with mcdonald's
by the way i still love the oreo mcflurries and fries yes at the same
time and no i'm not sponsored by mcdonald's which is why i have to ask
you to smash the like button and i promise you i'll share now pay attention
my fellow humble traders as well about to dive into the current market outlook
and trader psychology i think it's very crucial that we understand the why or
the psychology behind these huge gap ups or gap downs especially if you're
trading short term in a current market environment almost all the big moves
this year are driven by one thing and one thing only fear the fear of oil
prices spiking the fear of negative economic data and the fear of inflation
and the list just goes on and on fear is a much stronger emotion than confidence
or optimism that's the reason the bulls take the stairs and the bears take the
windows there isn't a lot of confidence in the
market and that's why with a lot of breakouts and overnight gap ups you'll
see stocks sell off more often than not i've been thinking of posting regular
market updates on all my social media accounts so i can share my thoughts on
the market with you guys so please comment market update down below if you
would like to see them let me know in the comment section below and make sure
to refer to the description for my real social media accounts so earlier we
talked about the first factor of this strategy and it was the technical gap up
or gap down the second factor to the strategy is whether there is negative or
positive catalyst let me explain as i talked about in the recent trading recap
videos there are large cap stocks that make overnight moves with their own
company catalyst it could be earnings potential deal going through or the
newest drama involving elon musk for example gamestop stock gapped up and
moved higher overnight after announcing they are doing a 4-1 forward split or
doordash in our earlier example gapped down because of negative news that
amazon is making a move into their market and guess what no one dares to
fight amazon especially after seeing jeff bezos bad ass outfit on the yat
over here on the other hand there are stocks that do not have their own
company's specific news for example the teledoc overnight gap up we saw earlier
it was gapping up to what we call air basically the company did not have
strong catalyst to support this overnight gap up it's a contributing
factor to the short thesis on this gap trading strategy take a look at another
example here uber as you can see here the stock gapped down overnight due to
the same catalyst as dash amazon takes a stake on grubhub and extends the food
delivery service to their prime membership this move from amazon will
directly steal market shares from companies like uber and doordash who are
operating in the same food delivery space therefore this uber stock reacted
negatively with the gap down prior day's close was around 22 dollars and 30 cents
pre-market it sold off into about 21 dollars and 80 cents you can see on my
chart here the strategy i like to use on these gap down stocks is to wait for the
bounce in order to short into it with a better risk reward so on this uber stock
even though pre-market is trading at 21.80
i waited until the spike to test 22 dollars and ideally i was actually
waiting for higher around 22 20s to short into it and my price target would
be the pre-market support around 2170s and the lows of the day around 2140s
eventually probably to 21 it's very important that you wait for
the bounce for the right risk award to short into it don't be that person who
short the stocks like these on weakness at pre-market supports or lows of the
day sure maybe that might work once a while but in the long run that's a very
high risk entry i will repeat don't short it at the bottom over here wait
for the bounce and then write it down and collect your profits
here are a few key takeaways to remember about this gap trading strategy
especially on the short side the higher the overnight gap up is the more likely
it is to sell off the lower the overnight gap down is the
higher you should wait for the stock to bounce in order to short
both of the above tips are all based on technical analysis however please do not
forget about the third key takeaway the fundamental catalyst because technicals
tell you when to enter but fundamentals tell you the thesis and how hard to hit
the stock this gap trading strategy which is talked about you will see this
play out within the next couple of weeks now that earnings season is approaching
so you best be prepared to trade all these overnight gap ups and gap downs
that we are about to see if you want to learn more about technical analysis or
trading earnings make sure to check out this playlist to learn from my other
free beginner beginner-friendly and step-by-step day trading strategies and
don't forget to hit the like button and subscribe to see more educational videos
like these and of course if you want to check out more of my day trading
strategies especially risk management then make sure to check out the humble
trader community down below thank you guys so much for watching as always i'm
the humble trader and i'll see you guys next time
you