Trading GAPS Lazy Trader PDF

7/25/2019 Trading GAPS Lazy Trader PDF

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EVERYTHING

YOU NEED TO KNOW

TR DING G PS

THE

LA

ZY

GAP

TRA

DER


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The Lazy Gap Trader 2

This report is a summary for the gap trading strategy outlined in the accompanying

video based gap trading course.

All trading and investing comes with a high level of risk and you can lose money if

risk is not managed properly.

These techniques should only be applied by experienced traders.

What is a gap?

The difference between the closing price and the following days opening

price of any market, stock, or other trading instrument.

Gaps are mainly caused by an earnings release, news items specific tothe company or industry, and any other reason you can think of, but

were not concerned with the reason why, only the trade and if we can

find a good support or resistance level that will provide a profit

opportunity.

Types of Gaps Trades Covered in the Course

There are two very specific and actionable types of Gap Trades the

course focuses on.

Morning Gaps

Stocks that open much higher or lower from where they closed the prior

dayssession are known as Morning Gaps. These provide an enormous

opportunity for those traders that understand how to find and identify

the price level where these stocks should find at least a short term

support or resistance price where a trade can be taken from an expected

reaction. In the course, youll learn how to identify these price levels,
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recognize how much of a reactionary bounce they should have, how

much risk to take and how much profit to look for.

There are specific price levels where the Institutional traders are very

likely to support or distribute a stock. These price levels can be foundand calculated using simple mathematics. You will learn precisely how

to calculate these price points. In addition, youll also learn how to

identify the highest probability set ups and how to avoid the ones that

have a limited chance of success.

Can you imagine catching a low on a stock similar to the one depicted

below?

An example of a morning gap trade looks like this:


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Gap Fill Trades

The second strategy taught in the course is taking advantage of stocks

that come back to fill their gaps. Not all gaps are created equal,

therefore, its extremely important to understand which stocks work thebest, how they arrive at their gaps and what type of reaction you should

expect from the Gap Fill. All these items are discussed and taught

throughout the course.

Its equally important to understand which stocks work the best with

these strategies, and which ones to avoid. If you understand the

characteristics of how a stock should fill its gap, then you can begin to

realize the profit potential these strategies afford those that wish to

profit.

An example of a stock filling its gap looks like this:


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Why does trading the gaps work?

More often than not price will retrace to an opening on a chart known

as a gap. This is also known as filling the gap. There is no hard and

fast rule about filling gaps, although most gaps do get filledat somepoint.

Were focused mainly on the gaps that get filled in a short period of

time, although these strategies and techniques work no matter when

the gap is filled.

The numbers never lie. We know most gaps get filled. More

importantly, we know by mountains of historical data what the typical

price reaction of a stock or market is after it approaches the gap.

Furthermore, using the same historical data, we know precisely what

conditions on a chart will increase the probabilities to determine what

price will do once it reaches that level. (in other words, we know what to

look for that will increase our probabilities of making money)

Lets break this down and look at it a little differently.

Imagine you have a business with a product thats in constant demand.You have a great relationship with a supplier who gives you fantastic

prices, and best of all, very few of your competitors know about it. The

product and supplier are extremely predictable and consistent.

No matter how much product you take on, the large majority of the time

youre able to immediately turn a profit, and the few times you dont the

losses are very small and manageable.

For years youve been selling the same product line, from the samesupplier to the same customers day after day, month after month, and

so on, for years.


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What you have done is developed a step by step process that produces

predictable and repeatable results.

Theres no doubt you will see the similarities withGap Trading.

If you can follow a system with a daily process for finding stocks that fit

the gap trading criteria, then applying rules to narrow the field to the

highest probability winning trades, then you can turn a system into a

profitable business.

Thats why Gap Trading works!

Narrow the field

Many of you have read technical analysis books, taken trading courses

and still find yourself in a never ending search for simple answers to

what seems like a complex question of how to make money in the

markets.

Of course there are countless methods of trading and investing. Many

of them with merit, and more often than not its the trader or investor

that makes the difference.

This system is no different. You must apply the process, rules and

discipline to find success with gap trading.

We start with defining this version of gap trading. There are several

text book definitions and methods to trade gaps. Were going to discard

a large majority of those scriptures and focus our efforts on a narrow

segment of the market we know to be fruitful. (Let everyone else

continue to bang their heads trying to follow less effective strategies)

You may have heard terms like breakaway gap, continuation gap,

exhaustion gap and others. Block them out for now.
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Were focused onmorning gaps and gap fill. Were focusedon trades

where we can scalp profits at a predictable and high probability, and

trades where we can hold for maximum profit by reducing our risk to

zero. (Yes, this exists while youre ina trade)

Some housekeeping and slang

There are some general terms and concepts to learn that will become

the foundation of our gap trading strategy.

Gap window

When a stock opens higher or lower from the previous days close, that

price level becomes support or resistance. This will often become an

excellent trading opportunity when the rules are applied.

Gap fill

When a stock fills the open space left by the price jump or decline on the

day it gaped up or down.

Chart setup

Japanese candlestick charts work the best for this process. We have

the body of the candle where well find the open and close for the day

and the wick which shows any price extension of the high or low for the

day.

The time duration of the charts we use is very important. At times

were going to utilize five different time frames. The 10 minute, hourly

or 60 minute, daily, weekly and even monthly charts will all be used to

determine if a trade setup has the probabilities in our favor. The longer

time frames are used to find the best morning gap trades where we can


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find the price level where the institutional traders are likely to either

purchase or sell a stockwith size.

The daily process

In the course, youll learn exactly what you need to do each and every

day to be successful. Youll learn how to identify the right stocks, at the

right price. Youll learn what to look for in terms of how a stock is

coming into or approaching an important level. Youll learn how to

manage risk properly. Youll learn how to know and understand how

much profit to be looking for on a trade, therefore you have an exit

strategy before you even enter the trade. Youll learn how to calculatehow much risk is appropriate on each trade based on the size and price

of the stock.

1. First we have to scout out a listing of stock that are gapping up or

down at the open. This is a simple process with the volumes of

free information available on the internet. Most brokers who

provide a trading platform also have stock screeners and hot lists

of whats moving for the day. Within these lists are categoriesfor stocks moving up or down in either dollar or percentage terms.

Bingo, this is what were looking for. This information canalso be

found on sites likehttp://finviz.comand

http://www.tradingview.com

2. Next we narrow down the list to only the stocks were interesting

in trading. We immediately eliminate low priced stocks, no stocks

under $10 per share, preferably $20. We will not trade stocks

with average daily volume under 500 thousand shares. The

higher the better.
http://finviz.com/http://finviz.com/http://finviz.com/http://www.tradingview.com/http://www.tradingview.com/http://www.tradingview.com/http://finviz.com/


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3. From the refined list, we now determine which stocks have an

early morning scalping opportunity. This is done using a

mathematical formula, previous support and resistance, pivot

points and other information to determine where the stock might

travel to in an extreme move up or down. We focus on these early

in morning because they have the highest chance of immediate

profit if our objective is reached.

4. Now put all the stocks on a specific watch list that will constantly

be monitored and harvested for profit over the coming days and

beyond. Each chart will have an alert and trend line identifying

the buy or sell price level. Visuals work best. This becomes our

living gap fill list.

Tool Box

There are many useful tools that play an important role in analyzing

markets. Each analyst uses technical strategies that are important and

relevant for their work. For gap trading, we need just a few simple

ones. Youll use trend lines to draw a visual of where price needs to gofor you to get interested. A Fibonacci retracement tool, in some cases

will help to find or support the case for price objective. In the videos,

you saw how finding prior support and resistance or pivot points

enhances the probabilities your price level will work.

The concept is to keep it simple, follow the process and use only whats

needed. The more tools and analysis you do, the more uncertainty you

will create. Uncertainty will bring out your emotions and undoubtedly

limit your success.


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Money Management

In any trading activity its important to adhere to strict capital

preservation and risk management measures.

There are two primary components to managing your capital

while trading gaps.

1. Establish stop loss and profit targets for each trade. While its

not an exact science, there are rules of thumb that work well.

Using between and 1% of the current market price of the

stock has been a good guide as long as youre able to use some

discretion and avoid the greed factor. The lower the price of the

stock, the less of a reaction or bounce will occur off animportant level. Conversely, the more volatile a stock is the

wider range you can expect it to trade. These are the ones that

may require a little more rope on the downside if you can

tolerate the wait, but the higher volatility stocks will give you

more profit when they get going. For example if GE is trading

at $27 per share and gaps down 5% at the open which

represents a $1.35 move, we may only be looking for about a

$0.25 profit objective. However, if AAPL is in play, the

objective may be larger. In the Gap Trading course, you will

learn specifically how to determine what profit objective is

appropriate for each stock you trade. Maintaining a stop is

extremely important because a stock making large moves at the

open can travel farther than most people realize which can

result in a quick loss of capital. Sometimes, youre first loss is

your best loss. You must realize, we do not and cannot win on

every trade, but if youre win percentage is high enough, and

you have discipline in your money management, then youll be

a winner.


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2.Youll learn how to maximize your profit on a trade while

reducing your risk to zero. Lets say youretaking a trade

based on Disney (DIS) filling a gap. You know your stop and

your initialprofit target. You enter the trade and buy DIS at

$100.00 with an objective to scalp $.60 in a matter of seconds or

minutes. (happens all the time) Its working out and you find

yourself ready to take the profit and move on. You bought 500

shares which puts $300 in your pocket on this single day trade.

But wait, theres more. What if you only sold half the position,

putting $150 in your pocket and placed a stop loss at either

break even (your purchase price) or slightly higher. This way,

you have the opportunity to hold Disney for higher prices. If

the stock climes higher throughout the day, you continue to

move your stop higher. What happened here was you

guaranteed yourself a profit on the trade, took the prospect of a

losing trade off the table and positioned yourself for higher

prices and more profit with no risk and no emotion involved.

Youve seen from the examples in the videos how this strategy

works and puts you light years ahead of the average trader.

Hard and fast rules

1. Do not trade after hours or pre market unless yourevery

experienced and fully understand the risks involved. Stocks trade

much less volume outside of normal trading hours. Strange things

can happen with limited liquidity. Caveat emptor.

2.

If a stock gaps above or below a target entry price for a trade, takeit off the table unless you have a secondary level of support or

resistance.


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3. Dont chase a stock up or down. As the price begins to get close to

objective, place a limit order at your desired price and let it

happen. Never use market orders.

4.

Not all trades will work out the way you dream, its part of thebusiness. This is a risk business and you must understand each

and every time you enter a trade you dont know exactly what will

happen, you are making decisions based on what you believe to be

the highest probabilities available. That never means 100%.

5. While waiting to enter a trade, if the stock comes close to your

objective and trades away close to or more than the amount your

profit objective would have been, but comes down later to your

desired entry priceDO NOT take the trade, it already did what

it was supposed to do and the probabilities of it happening twice is

greatly reduced.

6. DO NOT make up your own rules.

7. Click Here for additional information about the Gap Trading

Course.
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Trading GAPS Lazy Trader PDF

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