Stocks that gap up/down

[Fernando Samora 11]

Hey everyone

So I´ve been reviewing some stocks charts as part of my journaling and i've noticed that often (albeit not always) stocks that gap up/down tend to follow that initial push either up or down. Im wondering if you guys with more time watching charts can maybe corroborate this? I know it´s obviously not a rule tho but maybe it happens more often than not?

 

Thanks! 

[SpoTT Trader 35]

Hmmm. I think that is for you to decide. 

 

Personally, I don't agree with what you have noticed that "stocks that gap up/down tend to follow that initial push either up or down."  Or perhaps I just dont trade using that as a 'check-mark' factor.

There are many factors that could impact that analogy.  The list would be very long however some would include major resistance levels, trend line resistance, market sentiment.

Happy Trading.

[huntermac 28]

I agree with SpoTT. I certainly wouldn't count on that alone for a strategy. There are too many fundamental factors when stocks are gapping up or down to just count on that alone. Perhaps there are patterns in similar groups of fundamental news that effect price action, but that's something you'd have to do your own back-testing on. For example: "Fundamental Factors XYZ happened to stock A while the stock was gapping up/down and continued its trajectory of up/down." Then back-test that numerous times and see what the probability is that the trade will be positive. 

If you can find a predictable pattern/high probability strategy, then I'm all for it. But you'd have to dig deeper into it. 

A couple things I do not like about it personally: It'll probably be more focused on fundamental versus technical trading, and you'd probably have to hold the stock(s) longer than most day traders typically like. 

Good luck!