How to trade gap ups

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How to trade gap upsHow to trade gap ups

How to trade gap ups

Gap up can be very profitable if you trade it properly and it is somehow riskier than other patterns. There are different types of gap up that traders use to trade such as exhaustion gap up, initial gap up and gap up. What I wanted to see is if a stock gap up with good volume regardless of the type. It is often safer to buy a stock when the volume is high because the trend will likely to continue. If a stock gap up with low volume, yet it could still go higher, there is a bigger chance that the stock will go down and close the gap.

Gap up is best used as a confirmation trend when you find bullish patterns the previous day. It can be used in combination of bullish engulfing pattern (candlestick), morning star pattern (candlestick), stochastic crossover, macd crossover, triangle patterns, hitting support line, and so on. When you find a stock that is likely to form a triangle pattern as follows, and the stock gap up the next day or a few days after, that is usually a good entry point.

Example 1: Stock CFW

- The stock was in the consolidation area in the period of 2/3/2010 to 3/2/2010 and hitting support level. On 3/5, the stock gap up and almost double in 3 weeks. (Up 92%).

Example 2: Stock PENN

- This stock formed a bullish engulfing pattern (Candlestick Pattern) and hitting support on 2/26/2010, and then it gap up on the next trading day (3/1/2010). It then went up from $23.10 to $27.57 for a 19% gain.