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Ep 9: Trading the Gap and Fade in Bullish Markets

October 10th, 2013

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Hey all you traders and investors! This is Sasha Evdakov and this is Tradersfly TV. Today we're going to discuss The Gap & Fade on Very Bullish Days, it’s October 10th 2013.

Let's get started now the market had a very serious update today and it was all due to the DEP ceiling and everything like that

If we look at daily you'll see that it was up about 320 points, so either the largest or the second largest move for the year. And do these things excite me? No, not necessarily. I trade the trade and trade what's happening.
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If we look at the weekly longer-term perspective, we can see that we're still in this range bound it’s really just bouncing off of this support level. So, if I’m looking at it from that technical side of view, it's just bouncing and we were kind of overdue. The last two days I sold heavy on the bearish side and you know a lot of people have to cover after this long couple weeks run to the downside.

We got a little bit of good news and it popped the market higher.

So let me show you how you can play this and you can play it two ways, you can play it to the bullish side or you can play it to the bearish side. So you can actually do one of two ways.

Apple

Let's talk about starting with Apple, I’m just going to talk about the day trade for example. Now, Apple itself particularly it’s still consolidating here from what I'm seeing. You can see that it's holding in this consolidation pattern.
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Right here we're kind of creating a little our consolidation in this tight range. So it's going to break out somewhere sooner or later but if we look at the last two days, and I’ll look at the 15-minute, let's just say. In the fifteen-minute we ended the previous day high over here, right around right here so that's where we ended.

Now, let’s just zoom on the 10-minute, the market was set to gap up at the open and right here was the open. So the minute it gapped up, it wanted to retest those previous highs from yesterday, so that's yesterday, and this is today.

Let's say you didn't know about today, so let's move it over. Let's take a look, the market gapped up and what you can do is sell short right away. If you want to play it on the short side, you can definitely sell short but you've got to be prepared to cut your losses quickly because things move very fast in these types of markets.
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So, you sell it short and you start buying back your shares almost immediately and when it touches this you should pretty much be out. Right here by the third tick, so within 30 to 45 minutes, you pretty much done for the day with Apple if you're playing to the short side or you could reverse your position and go for the bounce okay.

That's how things came out as far as the bounce goes, is you can see it retouched it right here as well but basically you're using this line as your stop and you’re using it because of the previous day. See the previous day and even a couple days ago, you can see it was tested over here and that's why you use that.

Now if you wanted to play for the long side, you would have just waited to let retest this, played it to the upside, sold a little bit as things went up and probably got now. Again use this or a little bit below this as your stop so you could have hold some shares if you wanted to.

Tesla

Now if we take a look at Tesla, the same principle applies. Again we have the previous day right here and we have today. Now if I only saw the previous day, let's just say right here, I zoom in and i notice right here was pretty much my high.
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So I'm using this as my technical high at this 170 level, so that's what I'm using and the market will open up right here and again you can do the same principle; sell it short right at the open and as it moves towards this level 170 so it open at 175, you're waiting right around here 174 – 175.

It went down 2 to 3 points and you bought back some of your shares right around here at this 170 level and then you would have been done for the day and Tesla probably. There it goes and the rest of it played higher.

Again the same concept applies when you're playing for the long side, you could have waited for it to bounce here and then sell a little bit and the strength, sold off, maybe buy back some more shares again and then again.

So it depends which stock you're playing or how you're playing it. You can play the gaps to the upside, you can play the gaps to the downside but I just wanted to share with you a little strategy and a little technique that if you're speculating and you're speculating on direction that you can play it to this way or on to the upside or to the downside.
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It doesn't have to be a bullish move or a bullish play just because it's a bullish day, it can still be a bearish play even though it's a bullish day. So you don't have to always play things the way people are talking about it.

Just because the Dow over here had a significant run for the day, you can't argue with the market action but then again remember you’ve got to trade your trade. You trade what you see. So if you want to trade it to the downside, you can do that.

Looking at Tesla, you can do that because if you look at the open right here at the gap up, you sell it short and then you're done, you’re done for the day that's it. There was your moment and  if it would have went past your certain levels you would've been out that's it, and the rest the day you could have hang out, relaxed at the beach, and done whatever you wanted to do.

So that's kind of what happened. If you went to the upside there's another way that you could have played it.

CMG

Let's just take CMG for example, Chipotle. If we’re looking at CMG, if you wanted to play it to the upside let's just say you're looking for the day for the upside, it was our previous day level pretty much right around here and then we had another little level over here, couple days span let's just say.

I drew those in and right here the market opens. Now when it clears this you could have bought it and played it to the upside, and you would have used a few dollars lower maybe 130 to 129 probably as your stop and then you play it to the upside, market keeps heading.
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As you can see right here it’s clearing these previous highs over here. Again you draw out these different lines and levels and as things move up in your favor, look see how those are hitting those levels isn’t that interesting?

So just to give you some ideas, I'm not saying you have to trade it to the upside. I'm not saying you’ve got to trade it to the downside, what I am saying is you got to stick to your risk and reward strategies and when you're speculating on direction, this is just an idea and this is just a concept that you can use.

You can use it Apple, you can use it in Netflix, you can use it in Chipotle, you can use it in Tesla, there's all kinds of ways to go about it. Now of course the gap and fade in CMG today would not have worked.

So here it gapped, actually opened up within the trend line, you got to see which way the stock is moving and make those decisions very quickly. It went to the upside and moved higher to this, so I would've played that to the upside.

The other ones like Apple, I would have done the Gap and Fade because it gapped up so high and it faded and from that gap enough 491 to about 487, that's the 3 to 4 point run, that's not bad. Anyways, you got to trade it towards your risk and reward strategy and your style.

I’m just showing you some options of how you can develop or create your own style for your own trading system. So remember create a system that works for you and do it consistently and repeatedly and focus on the same stocks over and over, until you know them like the back of your hand because then you'll be a lot more consistent.

In either case, I'm Sasha Evdakov and thanks for watching! If you have questions feel free to shoot me an email. If you like this video spread the wealth and share it with your friends.

Thanks again! And remember to do what you love, contribute to others, and most importantly live life abundantly.

See you next time!

Author: Sasha Evdakov

Sasha is the creator of the Tradersfly and Rise2Learn. He focuses on high-level education speaking at events, writing books, and publishing video courses on business development, internet marketing, finance, and personal growth.

I'm Sasha, an educational entrepreneur and a stock trader. In addition to running my own online businesses, I also enjoy trading stocks and helping the individual investor understand the stock market. Let me share with you some techniques & concepts that I used over the last 10+ years to give you that edge in the market. Learn More

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