It is characterized by a strong counter-trend move in the opposite direction a stock has been trending in for prior days/weeks. There are two types of exhaustion gaps: Bearish exhaustion gaps, and bullish gaps. Here are examples of both:

Bullish Exhaustion Gap Example

A bullish exhaustion gap occurs at the end of a strong downtrend in a stock.  Here is a bullish exhaustion gap example with Kroger stock:Notice how it has a huge red day right before the circled green candle. And then the stock gapped down, even more, the next day. At this point, all of the supply has dried up since the stock has dropped so much in a short period of time (in this case it was bad earnings) and it was due for a dead cat bounce. As soon the market opened the gap was bought up and the stock rallied strongly.

Bearish Example

A bearish exhaustion gap is the opposite of a bullish one. It is a stock that gaps up which is sold into strongly. Here is an example of a bearish gap in Nvidia stock:You can see how it had a strong run-up, and then a huge green day the day before it had that huge sell-off into the exhaustion gap. It gapped up even further after a big day, and there was a scramble for traders and investors to take profits soon after the market opened.

Anticipating Exhaustion Gaps

You are probably thinking: How do I know the difference between an exhaustion gap or a gap that is just a trend continuation? How you can identify a likely exhaustion gap candidate is a stock that starts to reverse trend soon after the market opens after a big gap up in a strong uptrend or a big gap down in a strong downtrend.

As seen in the examples above, the exhaustion gap is the trigger for a short term trend reversal. Being able to recognize exhaustion gaps will allow you to take a position in a stock in anticipation of the gap reversing. These reversals will often be strong, as you can see in both examples, and can be great day trading opportunities if executed correctly.

Trading Exhaustion Gaps

This is a SHORT TERM trading setup. This is a trade you want to be holding for several hours, or maybe a couple of days. This is not a setup that you want to marry forever. NVDA resumed trend later that year and starting a run to the high $200’s. To make these high probability setups, you need to have EXTENSION in the names of interest. They have to be in an overbought or oversold state to make the setup trustworthy. This means you would to see an RSI above 80 for a short, or below 20 during the morning of the gap up.

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The post Exhaustion Gap Definition: One of the Most Powerful Reversal Setups appeared first on Bulls on Wall Street.

What is a Stock Gap?

What Causes Gaps?

Finding the Right Gappers To Trade

1. Large Intraday Range
2. News catalyst
3. No nearby resistance for a long play
4. No nearby support for short play
5. Low-Float
6. Former runner, meaning they have made big moves in the past
7. High relative volume

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Still watching SPY 190 (long) and 195 (short).  Video on WYNN and dealing with gap downs, along with focus list analysis.  Breakout-pullbacks of interest include BIDU, EGHT, LPNT, UA, ISRG and BIDU. New additions ZU and PNRA.  Market leader stocks of interest include GOOGL, PCLN, Z and TSLA.

Video Analysis  (11 minutes):

Today I talk about the gap down in WYNN and how to handle an opening gap down when you are in a trade.  The rest of the discussion is around focus list stocks and a few new breakouts

Key SPY Pivot Levels: 199 : recent old high, 195.25: 50 dma, 190 gap fill and support level

Under the Hood and Trading Game Plan:

Little has changed in the SPY chart.  We continue to look to short around $195 and go long around $190, while placing close attention to the volume patterns that accompany price movement.

IWM again was a little stronger than SPY.  As with SPY, I am looking to short on a low volume bounce and enter on a down move to around $108.  Notice how the IWM has bounced in the past at this level (arrows on chart).

Current Trades

I am still holding DECK, TWTR and WYNN.  WYNN gapped down hard and is discussed in the video.

The Trade Journal results

The Focus List

For now I only have the catalyst driven breakouts on the focus list.

EGHT, LPNT, UA, ISRG and BIDU are all near entry level on slight pullbacks.

New Additions:

ZU has been forming a bottoming range since the May gap down.  Volume has been good within this range and now we have a breakout over the 50dma.  Entry on pullback to $37-38.  Initial target $42.50.  Stop just under the 50 dma around $36.

PNRA is another bottoming formation showing signs of breakout out.  The stock broke out on strong volume and is now pulling back just under the 50dma.  Entry in the $145-146.50 range.  Initial target between $155-160.

I have Daddy/Daughter brunch at Panera once a week with my daughters, so I love that this stock is picking up.

Market Leaders

These are stocks that I always watch, though they might not be in my tradeable watchlist, nor are they actually always leading the market.

TSLA breaking out.  Looking for pullback to $150.  FB pulling back to gapfill.  Z is entering buy area on pullback.  GOOGL nearing moving average support at $560.  PCLN pulling back nicely post breakout.

Please read the post 23 Laws of the Part Time Swing Trading the Market Speculator Way and How to Anayze Your Swing Trade Results  It is important to know these rules if you trade off the Report.

New subscribers and trial members please leave me any feedback/comments in the comments, via email (singhjd1@aol.com) or twitter (twitter.com/PaulJSingh). 

The post Market Speculator Part-Time | Swing Trade Report appeared first on Bulls on Wall Street.

The post IO vs SONS Gap Up Trades appeared first on Bulls on Wall Street.

We were all excited about the gap up, just to watch the market fade, then chop, then move again, etc.  It’s very hard to understand when and where to make a trade… do I chase the open gap up?  Do I wait?  Damn, my swing buy orders triggered, but they are down at the close. Now I’m holding a stock that’s in the red on an auto-buy scenario.

Today was hard.

Don’t just look at the final numbers with Dow up almost 100 points and say to yourself,  “why didn’t I make money today?”  Let’s look at some strategies to consider when trading gap up days. In my opinion, I consider gap ups (whether market or individual stocks) one of th hardest to profit from.  However, there are some good strategies.. the key is finding one that works best for you.

This information was gathered from stockcharts.com, experience, other blogs, books, etc. and is a quick overview.. study more on your own. We’ll have lots of gap up days down the road.

For day traders:

So, you woke up this morning and some of your favorite stocks are gapping up in pre-market.  Not only that, the futures are pointing to a higher open thanks to news, or some event in other markets. What do you do?  The price is already above my target entry… am I chasing if I buy at the open.

This is a common scenario and exactly what we saw today.  However, there are a few techniques that might just save your ass worth considering.  (all based on 3 to 5 minute charts)

1. What did the pre-market volume for the stock you’re watching look like? If the pre-market volume was weak, but the stock gapped up at the open anyway, I would consider this a risky buy.  What you’re likely buying is a market gap up in an individual stock that rode the morning wave.  However, this wave, more often times than not,  will recede for this individual stock.   Simple rule number 1 – if a stock gaps up above the previous day’s highs on little to no pre-market volume, I avoid the open chase.  Move to step 2.
2. Did your stock open as a full gap or partial gap? Full gap means above yesterday’s high and partial means above close, but not above yesterday’s high.  Obviously, a full gap has a better chance of going higher than partial. The partial still has yesterday’s high acting as resistance. I tread both the same, but your odds of stronger swing returns are better with volume supported full gaps.
   1. Playing the full gap – WAIT! Sit on your hands and watch the move for the first hour, or so.  If the price is below the high made during the first hour, consider a limit buy just above the first hour’s high.  Watch your volume – relative volume needs to be above yesterday’s in order for the odds to be in your favor of a continuation move up on any pullback during the first hour.  If volume is weak during that hour, you could even consider a short with a short cover just above the high of the morning.
   2. Playing the partial gap – Only one main difference.  Did the first hour’s high beat out the high from yesterday?  If not, you might consider a smaller long position than you would in a full gap. you can always add to the position if it gets above yesterday’s high WITH volume.  Again, if you have multiple watch lists, the full gaps are the better choices, but never take your eye off volume.
3. Entries on pullbacks. Let’s say, after the first hour, you watch the stock hoping it gets back above the morning high so you can jump in, but in never gets there.  Is it still in play?  Maybe.  First hard rule I stick by – I will not buy on the pullback if it is below yesterday’s close.  However, if the pullback stayed above the close, then I look for pivots (intraday indicator (pivot points)).  If the price pulls back to one of the pivots (pivot, R1, R2, R3), then I would consider a long buy (partial position) if it bounces from there with volume.  This is not as reliable as buying on breakout above morning highs, but it’s worth considering if volume is generally strong and the stock is in a strong sector on a market up day.

My simple rule is to never buy a gap up at open unless it has MASSIVE volume.  Let’s wait on it for an hour, look for volume, and enter only if it gets back above the first hour’s high.  If not, consider for short or look for pivots.

Today, I think too many of us went gap up chasing instead of waiting for the trade to come to us.  Missing a big spike doesn’t mean you made a bad trade.  There are others and often times that big spike stock will come back for you.

For swing traders who must place conditional orders the night before:

This is a tougher position to be in, emotionally.  The fear, of course, is that you’ll set a limit order and it will get completely jumped at the open and never get filled.  I say, so what. So we missed a boomer.  It’s better than setting a market order just to get filled at the open at the high for that stock just to have it fade all day while you’re away and unable to do anything about it.  If your order didn’t get filled, visit it that night and see how it behaved during the day.. did it hold support? Did volume maintain throughout the day?  Lots of sellers at the close?  Maybe you don’t want that stock and happy as hell you didn’t get it.  Maybe there is a new entry.

I hope this helps.  Please let me know if you have any question or anything to add.  It’s frustrating to not make a lot of money on strong overall market days, but it’s even worse taking a loss.

Today was one of those days.

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