Gap trading strategies are actually good concepts to apply when you are doing your daily trade, and if you love the thrill of volatility. The huge gap between the previous closing prices is a good starting point of where you want to place your trades, and further take profits once the stock price corrects and stabilizes again.
However, as enticing it is to use the gap trading strategy for capping off the highest profit of the day, there are still warnings that you should take note of in order to minimize your losses.
If you are someone that takes the opinions of others in addition to the due diligence you are doing, make sure that person is really credible and reliable. The stock market follows the law of supply and demand so there might be a chance that they might be manipulating traders, especially when they have a lot of followers, into taking their advices. There might also be significant latency time between the time they placed their orders, and when you placed your order so your performance will be significantly different from that trader’s advice. This makes the day traders who followed them suffer huge losses and the opposite gaining lots of profits.
There are also private individuals inside the company that would give updates to the public through social media sites, and lots of beginners usually fall for it – making the stock prices go up within minutes, and drawback down once it isn’t hyped anymore. There are CEOs of certain companies that would market their product, and say it would be launched at this certain date, but such disclosure isn’t seen on the stock exchange. These kinds of rumors make the stock price shoot up the following day, and die down after. Beware of those instances. Make sure that your decisions aren’t affected by what they are forecasting, and you don’t do a split decision of entering a trade just because you heard a rumor or a stock hype.
But on the other hand, these situations and rumors can be used as leverage as well in executing your buying trades, and exiting your positions once you see that the hype is dying down. Just keep in mind that if you decide in doing this, you have to execute your utmost discipline.
There is nothing wrong as well with following your favorite trader’s advice. As I have mentioned earlier, make sure that they are reliable and credible. But as part of your due diligence, make sure that you are diversifying your trades. It is okay to copy the trading idea of a specific trader, but make sure it seems relevant to you and it makes sense to you. It should be in line with your trading strategy, and you understood it completely. Copying without thinking will not improve your trading strategy, and it will make you rely on others instead of doing your own decisions.
Learn to tune out the unnecessary noises in the market. You could listen to a few but ensure that learning happens. Ask yourself these questions:
Does it develop my critical thinking skills?
Is it in line with my trading plan?
Does it improve the quality of my analysis?
Is the projection being taken advantage of by the individual?
Only you could answer these questions, and those answers will highly dictate your trading success
Want to learn more about cryptos? There’s a lot to learn. Learn cryptocurrency, blockchains, algorithmic trading, financial analysis, algorithmic trading, the stock market, and more in The Complete Python for Finance: Learn to Trade in 99 Days.