![]() ![]() Reversal gap trading is a bit trickier, as you're essentially betting against the stock gap. Reversals occur when a stock gap down and then starts to move back up or gaps up and starts to move back down. Bearish breakdowns occur when the opening price of security gaps down and then continues to move lower. Bullish breakouts occur when the opening price of security gaps up and then moves higher. There are two main ways to attack gap trading in the morning: breakouts and reversals. Now that we know what morning gap trading is let's discuss how to utilize it. This shows what gaps can look like on a stock chart. In the example below, we can see the price chart has a bunch of "stock gaps" between the candles. Unfortunately, this number is extremely high, which presents a high probability trading opportunity to scalpers and swing traders. Gap trading techniques are so popular because of the percentage of gaps in the stock market that eventually get filled. Volume is what tells us whether or not the gap is significant. When trading the opening price gap, paying attention to both the price action and the volume is important. These setups are integral to every gap trading system as they can traders with high probable opportunities. Exhaustion gaps (Gap and Fill): when stocks gap and fade at the market open.Breakaway gaps or Runaway gaps (Gap and Go): when stocks gap and run at the market open.There are a variety of types of gaps to trade, but they can be broken down into two main categories: Gaps can occur for various reasons, but news announcements or earnings releases most often cause them. So, what is morning gap trading? A price gap is defined as the difference between the prices of a security's opening price and closing price. ![]()
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