Tuesday, April 21, 2009

Be in 2 Places at Once to Nail Your Next Gap Trade

The market is expected to open lower this morning for several reasons (all from my Twitter feed this AM):
  1. SmallCapInvestOil: prices languished near $46 a barrel Tuesday after renewed doubts about the health of U.S. banks sent crude and stock markets tumbling.

  2. alansmurray: Caterpillar and DuPont earnings raise fresh concerns about economic weakness. http://bit.ly/IjQ7S

  3. SmallCapInvest: Stocks are expected to open lower for a second day Tuesday following a string of disappointing earnings reports.
Given this news I will set up 2 strategy windows.  The filters for each strategy would profile the kinds of stocks I like to trade based on price range, volume profile (e.g., ADV, higher than usual volume, etc.), and volatility (e.g., ATR, etc.).  

The 2 strategies differ in the following ways but be similar in their approach: each will alert to specific stock activity/trade in the same direction as the overall market.  I achieve this by using the market direction filters: http://www.trade-ideas.com/Help.html#WSF_MinQqqq5

One strategy window will use the "Recent Gap Down Reversal" alerts: http://www.trade-ideas.com/Help.html#GDR to find the stocks that gap down and then fill the gap and continue to rise.  The overall market filters for this strategy will be positive - meaning that the Qs and/or Dow and/or S&P must be up at the time of the stock alert. 

Another strategy window will use the "False Gap Down Retracement" alerts: http://www.trade-ideas.com/Help.html#FGDR to find stocks that gap down, try to rise and fill the gap but then fail and wind up trending down below the original gap amount - like a reverse cup and handle.  The overall market filters for this strategy will be negative - meaning that the Qs and/or Dow and/or S&P must be down at the time of the stock alert. 

I'll leave you to design the strategies given this description and you'll be ready for today's open or another day that points to the same opening pattern.

I'll post again with the results of these strategies later.

Good luck.

1 comment:

sam said...

ok