Since we already have discussed the step-by-step guide in the previous lectures on how to create a trading plan and how we screen stocks, this will be an overview of how you may be able to proceed in executing this strategy accordingly.
If you are planning to use the Open Price Gaps Strategy, prepare an objective mind, notes, and open all the tabs that you may need. A good tip would be to open one tab for researching press releases, and another for the charting tools. Remember that time is the essence here.
The first is to visit the financial website of your choice. This might be Yahoo Finance, Google, Investor’s tab on any company’s website, or the news that your trading platform offers.
Decide which sector you will trade and select a handful of stocks that seems to be very popular at the moment.
Go through its company disclosures and look for shocking news of expansions, partnerships, joint ventures, dividend payouts and others that shed a positive light on that stock. If a piece of certain news sparks a positive sentiment in the public, mark it down.
Pull up your trading charts and plot your favorite indicators. Search for the ticker symbol of the stock you want to assess, and know first its historical performance. If it is seems good, and you are confident in your analysis, set your buy and sell target points, and execute once the trading day begins.
A good rule of thumb to this strategy would be this:
If the stock already gapped up and you are not in the trade yet – wait for the price correction, before entering.
If the stock you’re holding gaps up during the trading day – trade at your own risk. Close your positions before it corrects again and closes the gap.
If the stock gapped down – study the chart. If it is a good company with healthy financial management, trade and enter positions. If not, best to stay away for it might gap down further.
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