Increase Your Day Trading Profits with the Gap and Go Strategy

Are you looking for a powerful day trading strategy that can help you make substantial profits within just 30-60 minutes? You should consider the ‘Gap and Go’ strategy.

This highly effective technique involves identifying gaps in the market during the opening bell and capitalizing on the momentum created by these gaps. By utilizing pre-configured scans and high-quality stock market scanners like Finviz, you can easily identify potential opportunities and monitor multiple stocks simultaneously.

Whether you prefer long or short trades, this strategy can work for NASDAQ and NYSE listed stocks.

To successfully execute this strategy, timing is key – being early and closely monitoring price movements after the market opens is essential.

Key Takeaways

• Gap and Go is a powerful day trading strategy during market open.
• It is easy to identify and pre-configured scans are available.
• The strategy allows for long and short trade entry.
• Monitoring price movement after open is crucial for success.

What Is Gap And Go?

The gap and go strategy is a day trading technique that can allow you to finish your trading day in just 30-60 minutes if done right, making it the perfect strategy for taking advantage of the market open.

This strategy involves identifying gaps using pre-market screening tools and focusing on high volume gaps that indicate continuation in their gap direction. By having a watchlist and being early to identify these gaps, you can increase your chances of success with this strategy.

Trading the gap and go strategy requires action at or shortly after the market open, as the gap is defined by the price difference between the first tick of regular trading time and the last tick of the previous trading day.

Gap Identification

To successfully spot and seize profitable opportunities in the market, you need to quickly identify those sharp increases or decreases in the price of an asset that can potentially lead to significant gains.

Gap identification is needed for implementing the gap and go trading strategy. There are various gap trading techniques and gap analysis tools that can assist you in this process.

Pre-market screeners with pre-configured scans can help identify gaps based on criteria such as price movement, percentage gap, dollar gap, and trading volume. Having a watchlist of potential gapping stocks can also aid in identifying reasons behind the gaps.

The gap scan can be as simple as this one as entered on Finviz which just calculates average volume over 100K, price of the asset over $3.00, and at least a 4% gap:

For traders using Tradingview, here is a simple setup:

Combining the strategy with indicators like level 2 data and time and sales can provide further insights for making your trading decisions. By effectively utilizing these gap identification techniques and tools, you increase your chances of successfully executing the gap and go strategy.

I don’t use level 2 and will just use the scanners that are available.

These scans are showing normal market hours but monitoring the pre-market can also help you compile a watchlist for the regular session.

Gap Analysis

To effectively analyze gaps, it’s important to use various gap trading techniques. One technique is to identify potential support and resistance levels near the gap area, which can help determine entry and exit points. Paying attention to volume during the gap can provide confirmation of its continuation or reversal.

Consider combining any gap trading strategy with indicators such as moving averages or oscillators to add another layer of confirmation. It is key that you closely monitor price action after the market opens to help identify any changes in momentum or trend direction.

Indicators and Tools

When analyzing gaps in the market, you can utilize a variety of indicators and tools to enhance your trading decisions.

Combining indicators such as Level 2 and time and sales can provide valuable insights for gap trading.

• Level 2 allows you to see the bid and ask prices of a particular stock, giving you a better understanding of its supply and demand dynamics.
• Time and sales provide real-time information on trades executed at different price levels, helping you gauge market sentiment.

Using a watchlist can help you identify potential gap opportunities by keeping track of stocks that have shown significant price movements or have upcoming catalysts such as earnings.

Risks and Rewards

You need to be aware of the potential risks and rewards associated with the gap and go trading strategy. When considering this strategy, it’s important to understand both the pros and cons.

Gap And Go Strategy – Study

These strategies are not very complex and can be as simple as buying a breakout of the 5 minute candle high.  They are also not for traders that can’t focus during the first 30-60 minutes of the trading session.

Traders can look at pre-market movers and there are either screens you can do or websites you can visit.

This showed up in my scan when it had the gap up. The chart is a 5 minute chart and if you get many alerts, it is easy to flip through the chart to see what the prior price action looked like on the daily chart. Looking at the daily chart showed a consolidation pattern and very little momentum in price.

Price gapped up and the five minute candle closed in the upper third of its range.  Buy stop the high with a stop below the gap candle.  Your stop will go below the low of the gap candle or a percentage from your entry.

Traders can use percentage gain targets anywhere from 8-40%.

You can also hold these, especially if the prior price action was orderly, for up to a week before exiting.  Percent gain targets and monitoring price action for more is my way of handling these trades.

Here is a step by step approach:

1. Start by looking at pre-market movers to identify potential gaps.
2. Use screens or websites to find stocks that have shown a gap up.
3. Analyze the daily chart to assess the prior price action and look for consolidation patterns or lack of momentum.
4. Switch to a 5-minute chart and identify the high of the first candle after the gap up.
5. Place a buy stop order above the high of the candle.
6. Set a stop loss below the low of the gap candle or a predetermined percentage from the entry.
7. Determine a target percentage gain for the trade, typically ranging from 8-40%.
8. Monitor the price action and consider holding the trade for up to a week if the prior price action was orderly.
9. Consider adjusting the stop loss and target levels based on further price movement.
10. Exit the trade once the target gain is achieved or if the price action suggests a reversal or loss of momentum.

These are not complicated trades but do require quick evaluations of the charts prior to entry.

Frequently Asked Questions

What is the concept of a ‘gap and go’ trading strategy?

The ‘gap and go’ trading strategy is a concept where traders capitalize on the sharp price gaps that occur at the market open, often triggered by overnight news or events. The idea is to enter a trade near the open with the expectation that the stock price will continue in the direction of the opening gap.

Could you recommend the most effective ‘gap and go’ strategy?

One of the most effective ‘gap and go’ strategies involves identifying stocks that have a significant gap up or gap down during the pre-market trading hours, ensuring that this gap is supported by high volume trading, and then buying or selling the stock as soon as the market opens assuming that the trend will continue.

What strategy would you suggest as the highest yielding in day trading?

One of the most potentially profitable strategies for day trading could be ‘Scalping’. It is a strategy that involves exploiting small price changes throughout the day. This requires deep focus, quick decision-making, and precision.  It is not for everyone.

How profitable is gap trading in general?

The profitability of gap trading largely depends on both the robustness of the trader’s strategy and their ability to effectively manage risk. While it has the potential to be profitable, it can also result in losses, particularly if gaps do not follow the anticipated direction.

In terms of frequency, how often are gaps filled in during trading?

The frequency of gaps getting filled in trading largely depends on the type of gap. Common gaps tend to get filled relatively quickly, often within a few days, while breakaway, runaway, or exhaustion gaps may not be filled for a long time, if at all.

How frequently do gaps in stock prices get filled?

Gaps in stock prices are not always filled immediately. Depending on the type of gap, it could take from a few days to a few weeks, or even longer. Common gaps are usually filled quickly, while gaps due to significant news or changes in a company may remain unfilled for a considerable period of time.

Conclusion

The Gap and Go strategy is a powerful day trading strategy that can yield high profits if executed correctly.

By identifying gaps in the market and taking advantage of the momentum created by these gaps, traders can capitalize on short-term opportunities during market open.

However, it’s important to understand the reason behind the gap and monitor price movements closely.