Trading Video – Dealing With Price Gaps
Here’s another video of a trading lesson I learned in the market today.
There are always lessons being taught to us by the market…some of them are new, while others are reminders of lessons past. Every one of them are important, so let’s examine one today regarding price gaps.
A stock gap occurs whenever it opens one day at a different level than it closed at the previous day, creating a void on the chart. These can cause us to second-guess our entries whenever such gaps occur around our trigger levels, so today’s video shows how I dealt with one which was listed last night over at TheStockBandit.com.
Feel free to share it if you’re a fellow blogger, the embed code is on the YouTube page.
Without further delay, here’s today’s video. Enjoy the show!
Jeff White
President, The Stock Bandit, Inc.
Swing Trading & Day Trading Service
www.TheStockBandit.com
[tags]Stock Market, Day Trading, Stock Trading, Swing Trading, Trading Video, Investing[/tags]
Suzi | Apr 2, 2008 | Reply
Hi Jeff, In studying all your info on gaps, and this video, could you explain to me, when it gapped up, what is your rule of thumb on where to raise your stop loss to?
Also I have 2 more questions: On the “swing trading strategy ” page you mention that once a stock is held overnight, place a stop loss order no further away than below the recent consolidation area,”. Could you please point me to one of the latest charts to explain it to me? Does recent mean consolidation during that day like on a one min. chart? or do you mean in the last week or so?
Second question is on that same page, “once a trade is profitable by at least 5%, move the stop loss order to breakeven on a closing basis. Could you give me an example of that chart wise, or price wise?
I have been doing nothing but studying your program, for 2 weeks, printed out all the charts, a lot of the articles, became a member, printed a lot of the terms, have them all divided in a 3 ring binder, where I can access each pattern ect quickly… I have dealt hit and miss in rolling trending stocks for a few years, but now am finally time wise at a place where I have the time and certainly the drive to be a very serious student of yours. I feel bad taking your time, asking these questions, but I am so appreciative. I’msure I’ll have lots more questions in the future but I want you to know I don’t take your time lightly. Having 4 sons that I have homeschooled, graduated, and got on their own, now its time to get this done. Thank you, Suzi
TheStockBandit | Apr 2, 2008 | Reply
Hey Suzi, always good to see you stop by! I’ll take a shot at these questions but if I leave something out feel free to reply or shoot me an email.
Alright, on swing trades like this one I prefer to raise a stop after the first trading session at the earliest. Given that I took only a 1/2 position in the trade, that already offsets the added distance to the original (planned) stop loss. So for HIG, the stock nearly reached my profit target today (Wednesday) so I raised the stop on this one so that I’ll still make money in the trade (details in Member Area on the Trading List page). Generally though, I’ll want to evaluate how well a stock held a gap like this and then try to leave it a little bit of room while still limiting my risk as well as possible.
The Swing Trading Strategy page is a general guide for my trading, but I don’t defer to it all the time. It’s better than having nothing for a swing trader looking for a starting game plan, but I do not always defer to the rules there, just so you know. That page was established as a resource for those seeking some free help on developing a trading plan. It’s a good starting point, but every trade is slightly different so some modifications will be seen in my actual trades.
The comment of “place a stop loss order no further away than below the recent consolidation area” is based on the daily chart (since that’s what I swing trade from). All I’m saying with that is that going back to the original (daily) chart which caused my entry, I will not set a stop farther away than just beneath whatever pattern the stock just broke out from. So if it’s a flag or pennant, I’ll set a stop just under that level, at most. I will not designate some arbitrary percentage like 8% or something and ignore the blatant pattern failure. Once a stock fails a breakout and drops beneath a base, I’ll want to be out right away.
An example of the “5% stop loss to breakeven” can be seen with today’s stop adjustment on DRI (see Member Area on the Trading List page). That stock happened to move more than 5% higher than the entry, and the stop has now been raised essentially to breakeven for remaining shares (we’ve booked partial profits already).
I hope this makes sense and answers your questions. If not, just reply and I will gladly attempt to clarify!
I’m sure happy to learn that you’re finding the Bandit resources so helpful of late. It sounds like you’re being extremely diligent and are passionate about getting this. Keep that up, and you’ll get to where you want to be. Your driven personality is definitely a trait found in top traders, and that determination will serve you well in any endeavor – including trading. You sound like someone who gets focused on a task and then gets it done, so I’m looking forward to watching your development with your trading. I never have a problem helping driven, appreciative people like you. Thank you! Keep it up and don’t be shy about asking for help anytime!
Have a great night,
Jeff
Suzi | Apr 3, 2008 | Reply
Thank you so much Jeff, I’ve printed it off, and now off to study ….I so appreciate your kind words of encouragement, it means a lot… I had to laugh aloud at your comment”you sound like someone who gets focused on a task and then gets it done” No one has ever described me so perfectly! Suzi
TheStockBandit | Apr 3, 2008 | Reply
You’re certainly welcome Suzi, glad I could help out (and also provide you with a laugh!). Keep up the hard work,
Jeff