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6ed2b55cfba1-0 | Figure 6.20 shows a chart of AUDJPY with the stock market (SPY) plotted below it. The dates represented are from October 2010 through October 5, 2011. Points 1 and 2 show both a rising AUDJPY and a rising stock market. Points 3 and 4 show both a falling AUDJPY and a | Page 1451 |
af4798baad99-0 | falling stock market. That’s easy enough. Where this gets interesting is when AUDJPY acts as a leading indicator, which it did at point 5. On this date, March 29, 2011, AUDJPY broke out and made new highs. What did the stock market do? Nothing. It was in turmoil over yet another European country being on the brink of i... | Page 1452 |
a320ad6f5b17-0 | higher and higher, indicating that funds were aggressively putting risk on. Lo and behold, about a month later, on April 26, 2011, the stock market broke out and made new highs. A trader who was listening to every word of the financial press got short stocks because of the continuing coverage and worry over the Europea... | Page 1453 |
32518f438e2f-0 | the carry trade bought stocks, or call options on stocks, to await the inevitable catching up of the stock market to the actual risk being put on by hedge funds. Long story short, the money that the funds are borrowing has to be put to work. In Figure 6.21 , we have an intraday five-minute chart of AUDJPY and the E-mi... | Page 1454 |
322e7d99f666-0 | during the day and gauging the intensity of a sell-off in the ES. Point 1 shows a big sell-off in the ES midday on October 5, 2011. If, during this sell-off, AUDJPY has a mere “mild pullback” (as it does at point 2), then the chances of the ES turning around and rallying are very strong (as it does here). If the ES sel... | Page 1455 |
c0f3d96fb7d0-0 | the stock market is for real. Finally, the last reason it is important to understand the carry trade is because it explains what many people find unexplainable. For example, during the 2008 financial crisis, everyone and his mother was talking about how the U.S. dollar was dead, and how it was critical to put all avail... | Page 1456 |
e412b4d5a2bf-0 | happened during the heat of the financial crisis in October 2008? Gold got annihilated, selling off from $1,080 an ounce down to $707 an ounce. Gold stocks fared far worse. Goldcorp Inc. (GG), a very solid and popular gold stock, fell from $52.65 to $13.84. This was a typical move for gold stocks during the heat of the... | Page 1457 |
8b911928b173-0 | was smart and did “the wise thing” got taken out back and shot. What happened? Figure 6.22 shows exactly what happened. The top chart is AUDJPY, and we can see that risk was coming off in a big way, as AUDJPY plummeted from just over 100.00 to below 60.00. Remember when I said that markets move because they have to, n... | Page 1458 |
d6ff3d1119f8-0 | want to? Bingo. This was essentially the largest margin call in the world. Funds were forced to sell everything that counted as an asset, and that included gold. It didn’t matter what the asset was or whether or not it had intrinsic value. All of the assets that they had bought with borrowed money had to be sold so tha... | Page 1459 |
00eff6c12354-0 | rallied during this time. The U.S. dollar is also used in the carry trade, along with the yen, because it is such a low- interest currency (at least it has been over the past few years). As the carry trade was “taken off” and yen and U.S. dollars got “paid back,” guess what happened? The U.S. dollar rallied. Why? Borro... | Page 1460 |
77cf3b4addce-0 | equivalent of buying it. That is, paying back U.S. dollars applies upward pressure on the U.S. dollar chart. This is why the U.S. dollar did not collapse as many pundits predicted. It may collapse some day, but not while it is a low-interest currency and hedge funds are taking risk off. | Page 1461 |
3e61b375e265-0 | Figure 6.21 Where does the left-over cash go once all the assets are sold? Into U.S. Treasury bonds, which is why the 10- year note futures and other bond futures rocket higher during these times. The carry trade is on? Great, buy | Page 1463 |
8f41791f2a97-0 | everything. The carry trade is off? Get out of the way. Summing Up It is important to realize that the markets spend the majority of the day, even the majority of most weeks, consolidating and resting and | Page 1464 |
5cd15562e3e9-0 | backing and filling and pretty much doing nothing. Traders who wait for a move and then have to chase it will always be at a disadvantage to traders who get in before the move takes place. The way to do this is to watch these internals and look for clues concerning the path of least resistance. When the markets are qui... | Page 1465 |
9ffce885675b-0 | move takes place, the amateurs will chase it, and you can sell your position to them. | Page 1466 |
d8b16439a3e4-0 | Figure 6.22 Finally, it is critical to understand that all of the stock index intraday setups described in this book are based on using all of these intraday readings as a filter. For example, Chapter 11 discusses squeeze plays. If I get a two-minute squeeze short play, but the trin is trading at 0.53 and is near its | Page 1468 |
2b1e5c7b9d32-0 | lows on the day, guess what? I’m not going to take it because the internals are so bullish. Rather, I will sit back and wait for the next long setup. Because of this factor, it is very difficult to back-test these setups, as I would never take all of them as they come up—it’s all based on what the internals are telling... | Page 1469 |
10ec94468fca-0 | that show live trading and how the internals work in real time. These videos also show updated internals I’m using that aren’t included in the book—sometimes it is easier to “show how I use it live” than to paste a chart in a book. For anyone interested in managed accounts utilizing these techniques, we have set up www... | Page 1470 |
a98dbfb35784-0 | process works and how to get started. Congratulations, you’ve made it through the first part of this book. Now let’s dive into Part 2 and start looking at actual trading setups. | Page 1471 |
452120c019e5-0 | PART II WHAT ARE THE BEST INTRADAY AND SWING- | Page 1472 |
76c344b2488e-0 | TRADING SETUPS FOR FUTURES, STOCKS, OPTIONS, AND FOREX? Be not afraid of | Page 1473 |
a350f9450075-0 | going slowly; be afraid only of standing still. C HINESE P ROVERB Some long for the glories of this world; and some sigh for the Prophet’s Paradise to come. Ah, take the cash and let the promise go…. | Page 1474 |
0838d461f849-0 | O MAR K HAYYÁM : The Rubaiyat | Page 1475 |
fbeba11aea89-0 | 7 The Opening Gap: Why Is This the First and Highest- Probability Play of the Day? How Is Trading Without a Specific Setup in Mind Like Hiking in the Amazon | Page 1476 |
627f022d2611-0 | Without a Compass? If I had a dollar for every time someone asked me, “Of all the setups you have, what’s the one setup that works best all of the time?” I’d have my kids’ college already paid for, as well as their graduate school and their weddings. And I’d probably be able to take care of my in-laws, too, and their n... | Page 1477 |
fff2b2a2424c-0 | There is no easy way around it: different setups work better in different market conditions. Another question I get asked a lot is, “What’s the win ratio on that setup?” I’ve never been asked that question by an experienced trader. It’s always a newbie. Win/loss ratios have very little to do with the setup and everythi... | Page 1478 |
cf596aa1a235-0 | interested in a setup that has a win ratio of 99 percent? Great. Every time the $TICK goes to –1,000, buy one ES contract and use a 1-point target and a 100-point stop. This setup will win 99 percent of the time. “Fantastic,” you might think. But, alas, when it is stopped, you’ll wipe out all of the profit of the previ... | Page 1479 |
0911ae9c0534-0 | perspective, I know many traders who have a 50 percent win ratio and make a lot of money trading. How? Their winners are, on average, three times bigger than their losers. Yes, it all comes back to trading psychology and letting your winners run and cutting your losers off at the knees. Before we jump into the first of... | Page 1480 |
f30352248369-0 | opening gap play, I want to quickly review one absolute truth about this business. That truth is as follows— when it comes to trading for a living, all investors fall into one of three categories: 1. Those who have a system that they follow each and every day 2. Those who are | Page 1481 |
1aada7d2c74f-0 | developing a system and are on the lookout for the Holy Grail 3. Those who have never believed in utilizing a specific system and just trade on instinct— and are still explaining to their spouse how they lost all their trading | Page 1482 |
371d0c6ed72e-0 | capital. The point of this, of course, is to emphasize the importance of facing each trading day with a game plan and of establishing a trade setup with a three-pronged approach. In addition to the actual setup, there also needs to be a foundation from which to operate the setup. This foundation consists of the followi... | Page 1483 |
ec3988c98199-0 | methodology, the money management technique, and the knowledge of the best markets to trade for that particular setup. In other words, it’s a lot more than just “What’s the entry?” Do traders scale into a trade or go all in? Do they scale out or go all out? Is it better to use a tight stop and bigger size, or a wider s... | Page 1484 |
7d805f4767f5-0 | Dow or the euro currency? Each market is unique. Each setup is unique. Each time frame is unique. Without these additional data, traders are destined to fail, and they are only kidding themselves if they think they can do this for a living. They may have a lot of fun for a few months or a year, and they may get an incr... | Page 1485 |
1d88a9af878e-0 | traders that act quickly when trying to make money and that act too slowly when trying to protect what they have. The idea is to create a situation that allows a person to do this for a living—each and every day. This section focuses on a series of setups for the active trader and provides a collection of strategies th... | Page 1486 |
1adba07a2224-0 | trading. Specific markets are highlighted, with exact entry, exit, and stop loss levels, focusing mostly on intraday setups. Swing-trading setups are also discussed, and these are noted as such. In general, any setup that is used on the stock index futures can also be used on individual stocks. Exceptions to this guide... | Page 1487 |
f315bc58e83a-0 | strategies in another account. This keeps everything separate and easy to track. I chose to show setups that had a successful resolution in order to demonstrate how to manage the exits on these setups. In instances where these setups get stopped out, and that does of course happen, sometimes frequently, that is an easy... | Page 1488 |
003f1289074b-0 | important that you realize that not every trade will work out. It is quite possible to get stopped out two or three times in a row before you catch a successful move. This is a normal part of trading, and it is important that a trader not get frustrated. This is why it’s important to “keep losses small and let winners ... | Page 1489 |
920ec5729396-0 | witnessed with traders is that they get stopped out of a setup and then hesitate to take the next one, which of course turns out to be a winner. Or they get stopped out of a setup, so the next time that setup occurs, they take profits too fast. Or if the last one was a winner (or a loser), then they double up on the ne... | Page 1490 |
b47bfe08967d-0 | just do the setups, not operate based on “how he feels about the last trade.” On any given day, I will take five intraday setups. One of these will get stopped out, two will be scratched, and two will be winners. On days where my first three trades are winners, I will usually stop for the rest of the day and book my g... | Page 1491 |
3f18cb596744-0 | golf balls. I utilize a variety of specific setups in my daily trading routine. I started off trading stocks and stock options, so most of the setups focus on some aspect of the stock market, whether it’s through individual stocks or through the mini-stock index futures. There are also setups in other markets that I di... | Page 1492 |
5f51418cc994-0 | silver, and some of the currencies. Some of these I developed myself, and some of them were developed by other people whom I trade with. The purpose of this section is to give you specific setups that you can utilize on the next trading day. It should also give you a blueprint for developing and tweaking your own setup... | Page 1493 |
bfd48429e17a-0 | occurred when I learned to ignore my brain and just focus on a handful of good setups. Once I learned the setups, the next challenge was to have the discipline to follow them the same way, each and every time. I did this by recording my trading activity for more than a year and focusing on the results for each setup. ... | Page 1494 |
795a29fe5a64-0 | early or in too late, I noted this in my data and marked it as an “impulse play.” After a while, I noticed that these impulse plays didn’t make me any money. I saw the light, so to speak, and suddenly my trading focus took a dramatic shift. Instead of focusing on the potential gains of a trade or worrying about missing... | Page 1495 |
4297b89b3e29-0 | key difference between a trader who can do this for a living and a trader who lives a life of quiet frustration. I’m not going to beat around the bush on this: following setups without letting the day’s or week’s or month’s P&L affect your thinking is very, very hard to do. But it’s the difference between life and deat... | Page 1496 |
90047f17da24-0 | Either people choose to light up another cigarette or they do not. They take it one day at a time. For each day they don’t light up, the better the odds that they will never smoke again. It is no different in trading. For each day traders can actually be totally disciplined and follow their setups exactly as planned—ev... | Page 1497 |
be1403d17887-0 | without them—the better the odds that they will make it in this business. If you want thrills, go to Disneyland. Although I can’t stand over your shoulder and help you with your discipline, I can show you the setups that I use to trade for a living. I have loosely organized these in the order in which I look at them th... | Page 1498 |
6a4b8fa04190-0 | out on your own, you will find that you naturally gravitate toward some rather than others. Key in on this, as a trader will tend to move toward setups and markets that seem to fit her personality. Let’s jump right in with the first setup and one of my favorites—the opening gap play. Why Aren’t All Gaps Created Equal? | Page 1499 |
4c7b0d5a49af-0 | With regard to gaps, very little has changed since this book first came out. I still find gap plays to be the best way to start off my trading day. Not only are they the first trades of the stock market session, but, more important, they can also tell a person a lot about the upcoming market action for the day. Because... | Page 1500 |
fbd77652c12e-0 | others. Gaps are contrarian plays, or “fade plays,” as I like to call them. Opening gaps create a lot of excitement and emotion in the market participants, and I like to step in and take the opposite side of this emotion. The play is completely against the crowd, which I like, and it is one of the lowest-risk trades av... | Page 1501 |
bc7de0698482-0 | gap? A gap occurs when the opening price of the next day’s regular cash session is greater or lower than the closing price of the previous day’s regular cash session, creating a “gap” in price levels on the charts, similar to that space we see each night between David Letterman’s two front teeth. It is important to n... | Page 1502 |
f8218f333e7e-0 | specifically set up a “gap” chart. With a 24-hour chart, traders will not see the gaps. This is discussed in more detail shortly. When it comes to gaps, not all markets are created equal. Gaps in “single-item” markets do not act the same way as gaps in “multi-item” markets. Examples of single- item markets include bond... | Page 1503 |
52cbc3df571f-0 | individual stocks. These gaps typically fill at some point, but not necessarily on the same day. For this play, I’m specifically interested in gaps that have a high probability of filling on the same day they are created. For single- item markets, a news item controls the entire order flow for that day, instead of affe... | Page 1504 |
e1eff16ec56a-0 | This is especially true of individual stocks. Individual stocks are like politicians, in that each day they can produce a fresh skeleton from the proverbial closet. Earnings announcements, corporate scandals, and insider deals can create gaps in price that never get filled. Ken Lay and Bernie Ebbers certainly wished th... | Page 1505 |
6ed7dac8cbb5-0 | gaps. Unfortunately, the odds of this happening are about the same as that of Republican and Democratic senators working together for the good of the country. In other words, it’s never going to happen. Because of the unpredictable nature of individual stocks, they make poor candidates for gap fills. The exception to t... | Page 1506 |
a330bdeab17e-0 | not on any particular news. How does a person tell this? If a stock is gapping about the same percentage as the overall market, and there isn’t any news on that stock, then that stock can be played as a gap play. For example, if AAPL gaps up 1.00 percent, the overall S&P 500 is also gapping up 1.00 percent, and there i... | Page 1507 |
94e605214ede-0 | moving with the overall market. As compared with single- item markets, multi-item markets such as the E-mini S&Ps and the mini-sized Dow futures, as well as their equivalent ETFs (exchange- traded funds) via the Spiders (SPY) and Diamonds (DIA), make great candidates for gap plays. This is because there are individual | Page 1508 |
67ad6b3c07d9-0 | components of these indexes that will respond differently to various news items. Good news for oil companies is bad news for transportation companies. Good news for defense stocks can be bad news for travel-related stocks, and so on. This means that, although the market may gap up on a news item, there will be individu... | Page 1509 |
c0c676794cf1-0 | the news or sell off on the news. This, coupled with an initial pullback in the strong issues that are gapping up, weighs down the entire index, creating an opportunity for the market to fill its gap. In addition, many fund managers watch the open gaps. They’ve been doing this for a long time, and they know that the ma... | Page 1510 |
b63131a322e9-0 | gaps. If the markets gap up, they will generally wait to start committing to the long side until the market has pulled back and filled its gap. In this way, it is also like a self-fulfilling prophecy. What about the Nasdaq and the Russell? I’ve watched these markets as well, and although they do fill their gaps a large... | Page 1511 |
79bc6a2e3b2f-0 | percentage is lower than those for the Dow and the S&Ps. In the end, my favorite gap plays are in the mini-futures and ETFs representing the Dow and the S&P 500. What Is So Magical About Premarket Volume? The great thing about gaps is that they are like an open window, and, like all | Page 1512 |
264ce74a49fe-0 | windows, at some point they are going to be closed. The key, then, is to be able to accurately predict when the day’s gap (window) is going to be filled (closed). What is as important as analyzing the gap itself is analyzing the market conditions that produce the gap. The reason for the gap is immaterial. Upside earni... | Page 1513 |
cb0ddc3233aa-0 | reports—each morning the markets are bombarded with news. It’s not the actual news, but how the markets respond to that news that is important. To understand how the markets are really reacting to the news, all a person has to do is look at the premarket volume. In addition to news gaps, which are more or less fishing ... | Page 1514 |
80e9decf7bc5-0 | Professional gaps are designed to keep the retail investor out of the market. These occur when the Dow gaps up 100 points and then trades in a tight range for the rest of the day. The move essentially happened before the market opened. The professionals who were positioned for the move benefit, while the average retail... | Page 1515 |
61bfc9d94a69-0 | to participate in the move. Again, premarket volume can tell a trader if the gap is going to be a professional breakaway event or is going to lead to price action that has a high probability of filling the gap on the very same day it was created. A professional gap with high premarket volume can take weeks to get fille... | Page 1516 |
e5d1b69313f4-0 | expeditions. These are smaller in nature, are highlighted with low to moderate pre-market volume, fill quickly, and can be faded regularly. The question, then, is, if I ignore the reason for the gap, what is it that I’m looking for that determines whether or not I will take the setup? Premarket volume in what, exactly?... | Page 1517 |
378c3a9d04fe-0 | watching is the premarket volume in a specific set of cash stocks, typically the big names of the day. When I first wrote this in 2005, I liked to watch KLAC (KLA- Tencor Corp.), MXIM (Maxim Integrated Products Inc.), NVLS (Novellus Systems Inc.), and AMAT (Applied Materials Inc.). I liked these stocks because they wer... | Page 1518 |
f4c7a613bfd3-0 | were traded aggressively by both individual traders and fund managers. Today, I’ve replaced these stocks with AAPL (Apple), GOOG (Google), PCLN (Priceline), BIDU (Baidu), and AMZN (Amazon). These are the movers and shakers today. Ten years from today, the set of stocks may be different, though it’s hard to imagine AAPL... | Page 1519 |
7c7de6571ab6-0 | Even though these stocks are not part of the Dow, they still provide a clear map as to how the market is handling any particular news that is out on the day. If the volume on these stocks is heavy, then it is obvious that the market is taking this news very seriously. If the volume on these stocks is light, which is mo... | Page 1520 |
4338ee54db8a-0 | has already priced it in. It is on these days that the gaps have a very high probability of filling on the same day in which they were created. What I’m looking for is the premarket volume in these stocks as of 9:20 a.m. eastern, 10 minutes before the regular cash session opens. The premarket session opens at 8:00 a.m.... | Page 1521 |
5aa27742116b-0 | 20 minutes’ worth of trading. If these stocks are trading less than 30,000 shares each at this time, the gap (up or down) has an approximately 85 percent chance of filling that same day. However, if the volume jumps up to 50,000 shares each, the gap has only about a 60 percent chance of filling that same day. On these... | Page 1522 |
7eb791f286a9-0 | of being hit, so I do take this into account and adjust my target accordingly. For example, if the gap is 50 points on the Dow and the premarket volume is moderate, then my target is going to be 25 points from my entry instead of the full 50 points, which would constitute a gap fill. Finally, if the premarket volume ju... | Page 1523 |
6d10602e1e9d-0 | the gap filling that same day drop to 30 percent. These are typically the days that involve a professional breakaway gap. On these days, I don’t fade it. I typically stand aside and wait for one of my other setups to unfold. These figures are for “normal” market conditions. As I write this in September 2011, the market... | Page 1524 |
5e8d2c53aa61-0 | extremely volatile, and I’ve had to double these numbers, especially for AAPL. One way to get an idea of these levels is to look at the $VIX. A few months ago, the $VIX was trading at around 20.00, which is essentially “normal” and is what the volume numbers given here are based upon. It’s currently trading at 40.00, w... | Page 1525 |
95066c910098-0 | have also had to be doubled. Take a look at where the $VIX is trading and you’ll be able to get the approximate volume numbers you’ll need. If it’s trading at 60.00, you’ll need to triple the numbers given here; if it’s trading at 10.00, you’ll need to cut them in half; and so forth. Why does this premarket volume indi... | Page 1526 |
bb2f2fc94126-0 | car uphill on an empty tank of gas versus a full tank of gas. If the market is really set up to move, then there will be real volume coming into the cash market to propel that car “up and over” the hill. If the market is just setting up a head fake, then the volume in the cash market will be low, as there won’t be any ... | Page 1527 |
6ed6cc92b228-0 | how I use this information to manage my trades. Table 7.1 | Page 1528 |
1acb4ff5185d-0 | There are many days when three of the stocks are trading under 30,000 shares and another stock will be trading 95,000 shares. In these cases, I will first check to see whether there is specific news on that stock. If there is, I will throw it out. If there isn’t, I will then take an average, call this a “moderate” gap,... | Page 1530 |
2fbc7214eedf-0 | my target on the first half will be 50 percent of the gap fill instead of holding on to the entire position for a full gap fill. For moderate gap plays, I do not trail down the original stop, even when I get out of half my position. What Are the Best Days of the Week to Take This Trade? We keep a tab on raw gap | Page 1531 |
9b1f87864af0-0 | data, meaning the percentage of the time that a gap fills, regardless of how big the gap was or how much premarket volume traded. Just the clean, raw, “it is what it is” data. In Table 7.2 , these data are sorted by day of the week and show what percentage of the time the markets filled their opening gaps on the same ... | Page 1532 |
87c57fda30d2-0 | Table 7.2 | Page 1533 |
83f28fd2a32a-0 | As is evidenced by these data, gaps in and of themselves have a very high probability of being filled on the same day on which they are created. If a person could get these same odds at a blackjack table, Las Vegas would be put out of business in three months. That said, it is important to note that Mondays are the day... | Page 1535 |
448cff8e3483-0 | filled gaps. The main reason for this is that most breakaway gaps happen on Mondays—there are a lot of developments that can happen over the weekend. On Mondays, I typically pass on the gaps; in fact, I typically just let the markets open without me, in order to give them a chance to “settle in” before I start looking ... | Page 1536 |
700256271c5f-0 | Finally, I’ve noticed that expiration day (the third Friday of every month) and the first trading day of the month have low probabilities, in the range of 55 to 60 percent. I generally pass on fading the gaps on these two days. The only exception is if the premarket volume is very low. The bottom line is that if the pr... | Page 1537 |
14756205640b-0 | doesn’t understand the reading on any given day, the odds are still there, and the trade is worth taking. What Are the Trading Rules for Gaps? Trading Rules for Gap Down Buys (Gap Up Sells Are Reversed) This set of rules for gap down buys is based on a gap | Page 1538 |
f41e37a14a98-0 | with low premarket volume. If the volume is moderate, then I will do exactly the same thing, except that I will take off half my position when the markets reach the price level that represents 50 percent of the gap fill. If the premarket volume is high, then I pass on this trade setup. Remember, this is a fade play. I ... | Page 1539 |
aeeb7efd0ada-0 | gap down: 1. I first set up a special intraday gap chart that starts collecting data at 9:30 a.m. eastern and stops at 4:15 p.m. eastern. This is so that I can view the gaps. These gaps won’t appear on charts that carry 24 hours’ worth of data or as | Page 1540 |
d8b66b1170b5-0 | “regular session” data on the futures markets. 2. A gap must be at least 10 YM points or 1 ES point— otherwise I will pass. 3. If a gap is more than 70 YM points or 7 ES points, I pay careful attention to | Page 1541 |
1ce129e55861-0 | the premarket volume. Most breakaway gaps are big gaps. However, if the premarket volume is low to moderate, I will still take these. 4. With a gap down, when the regular cash market opens at 9:30 a.m. eastern, I buy the YM or ES | Page 1542 |
730a7ff2a0f7-0 | at the market. The DIA and SPY can also be used. It doesn’t really matter which market is utilized, with two exceptions. First, if one of the stocks in the Dow is “out of whack,” then I will play the gap in the S&Ps. By this I mean that if a stock like IBM is up 10 | Page 1543 |
5bff7db69e75-0 | points on earnings, then this index is going to be out of whack with the rest of the markets. The other exception is if I am specifically using the Dow in another setup, say a squeeze or a pivot play (these are discussed in upcoming chapters). Then I will take the | Page 1544 |
319fffdde119-0 | gap in the S&Ps. This way, if I am still in the gap play when this next setup fires off, I can just take it in the Dow and leave my gap trade on. 5. Once filled, I set up a protective sell stop with the following parameters: • For gaps that are | Page 1545 |
0a2411feb75d-0 | under 40 YM or 4 ES points, I use a 1½:1 risk/reward ratio. (For example, for a 20- point gap, I use a 30-point stop.) • For gaps that are over 40 YM or 4 ES points, I use a 1:1 risk/reward ratio. (For example, for a 45- | Page 1546 |
904eb45340dd-0 | point gap, I use a 45-point stop.) 6. My target is the gap fill itself. If yesterday’s closing price was 1058.50 on the S&Ps, then that is my target for the gap fill. For a moderate-volume gap, I will split this order up, having half my target at 50 | Page 1547 |
0034d1387a38-0 | percent of the gap fill and leaving on the remaining half for a potential full gap fill. 7. I don’t trail stops for this setup. 8. If I’m stopped out, then the gap play is over for the day. 9. If neither the target | Page 1548 |
4daca2961468-0 | nor the stop is hit by the closing bell, I exit my position at the market. 10. For the gap play, there is only one potential setup per trading day. Who Is Getting Hurt on This Trade? One of the most important steps for traders is to | Page 1549 |
d46e8531c367-0 | understand why they are making money in a particular trade—which also means understanding who exactly is losing money on the other side of the trade. Who is getting hurt and why? When markets gap down, there are generally two groups that are going to get hurt. First, there are the people who are long from the day befor... | Page 1550 |
884a6762750f-0 | markets gap down, these people are either getting stopped out or panicking and selling. Second, there are people who are flat, see the gap down, think it is the end of the world, and start shorting. In this setup, I want to be on the opposite side of the trade from both these groups, because both of them are having a s... | Page 1551 |
b7fb1e7e522c-0 | to get into a trade. Therefore, when they are selling, I am buying. These same groups will provide the fuel for the rally through, in the case of the first group, panic buying in trying to make back their early losses and, in the case of the second group, short covering via the stops they placed when they put on their ... | Page 1552 |
c13ecd50f39a-0 | where price action is taking shape. Each of the lists that refer to the chart is numbered so that the text following “2” describes point 2 in the chart to which the text is referring. What Are Some Specific Examples of Trading the Gap? Mini-Sized Dow—December 2003 Contract, October 15, 2003 | Page 1553 |
a398d0d4793b-0 | 1. The mini-sized Dow contract closes at 9717 on October 14 (see Figure 7.1 ). | Page 1554 |
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