4 Gap trading strategies that no one told you about

 Are you looking for Gap trading strategy? In this article, we will be showing you how to use gaps in trading stocks using Supply and Demand trading. Gap’s trading is nothing but Invisible candles, which is caused by a sharp move up or down with little or no trading happening

between the previous day's close and the current day's open. A trader can use these Gap Trading Strategies and trade them and earn good profits. This article will help you understand how to trade Gaps, why they occur and how to trade them for a Profit using the Supply and Demand Trading Strategy. The fourth gap is the best, read till the end to find out why.

 

 

What Are Gaps?

Gaps are nothing but Price of a Stock moving up and down sharply with no or little trading happening between the previous days close and current days open.  Gaps shows an ultimate picture of Imbalance. Gaps happen suddenly due to many fundamental and technical reasons. For example, when there is an announcement of company earnings. If the there is positive or a negative news, there is a Gap up or Gap down imminent the next trading day. A trader can profit from gaps when they are filled the same day or whenever the gaps are filled.

 

Types of Gaps

There are 4 types of Gaps

1.  Inside Gaps

2.  Outside gaps

3.  Professional Gaps

4.  Novice Gaps

 

Let’s us discuss each of these gaps in detail.

1.    What is Inside Gap Trading?

Inside gaps are created when Price Opens between the prior Day’s High and low. Often these gaps fill quickly or the same day. A trader can plan a short or long trade once the gap fills up. Let’s see an example

 

 

 

2.    What is Outside Gaps Trading?

Outside gaps are created when Price opens beyond the Prior days High and low. These gaps do not fill on the same day. A trader can plan a long or short trade once the gaps fill up. Let’s see an example

 

3.    What is Novice Gaps Trading?

When price gaps up in the same direction as the current trend, then it is called Novice Gaps. Novice gaps as the name suggests are created by novice traders emotions and are excellent opportunities to have a high probability of working in our favour. It is an excellent source of Imbalances between supply and demand. Let’s see an example

 

4.    What is a Professional Gap?

When price gaps up in the Opposite direction of the current trend, it is called a Professional Gap or a Pro gap. Pro gaps represent an excellent opportunity for Supply and Demand Imbalances. 

 

Gap Trading Strategy using Supply and Demand Zones

 A lot of people trade gaps and profit from it. A Gap up and Gap down simply means there is an imbalance of supply and Demand. For the purpose of Understanding how to trade gaps, we will be combining it with the Supply and Demand Trading Strategy.

How to Identify these gaps

There are many scanners or scans for stocks that have opened more than 4% from the Prior day's Close. There are many stock market scanners for stocks that can give you the details of such stocks that have gapped up on that day.

Chartink.com, screener.in, www.tc2000.com ,www.finviz.com, etc have free stock market scanners that can help you identify gap-up and gap-down stocks.

How do we trade gaps?

Once you have identified gaps with the help of a scanner, the next step is how to trade a gap. For the purpose of our discussion, we will learn how to trade these gaps with the help of Demand and Supply zones.

The First step is to identify a Supply or a Demand Zone. If you find any gaps on a Rally base rally, drop base rally, drop a base drop, or rally base drop.

       

 Also Read: Price Action Footprints

 

Conclusion

 

Any strategy works better when there is proper risk management and trade management involved.  We as Supply and Demand Traders can identify these Gap patterns, and plan and execute trades as per the rules. But to successfully trade these patterns one needs to be well-versed in the Supply and Demand trading Strategy. MAK Trading school has covered many such strategies in their CORE STRATEGY -Course.

 

Stock market trading is a risky business, hence please trade with a Trading strategy that fits your mindset. If you are a beginner, then we would suggest you first get trained in Supply and demand trading and then trade, to gain confidence one can start off with paper trading or with small capital. Pro traders who already know the subject can learn more advanced concepts in Supply and Demand trading. Till then Happy Trading!