Intraday Trading Techniques and Strategies
STRATEGY #7: Gap Down - Fill Gap - Inside Bar - BreakOut
Some intraday trading techniques and strategies take advantage of other traders being hit by a short squeeze. This is one that has served me well in the past, due to many traders simply being on the wrong side of the gap.
Many novice traders like to automatically jump on a stock to the short side once they see it on a gap down list, hoping that it will go down much further for a nice profit. What I'm showing you here is, an intraday trading technique for stocks that have gapped down in the morning and formed a particular pattern.
This enables you to buy them and use the buying pressure that results from other traders getting stopped out once a breakout occurs in the opposite direction of what they expect.
It may seem counter-intuitive to buy stocks that have gapped down, but if they meet the following criteria, short squeeze action can really send these stocks up like a rocket during the day.
Some of these people that will get stopped out will possibly reverse their position to the long side helping to move the stock price up even more. Remember, when someone gets stopped out of a short position, they are having to buy the same amount of shares that they shorted. If they automatically reverse their position after being stopped out, they're buying twice the shares!
That's why this intraday trading strategy can really send stocks flying upward very quickly. Be on the right side on a few of these during the week and they can erase a lot of small losing trades.
With the other gap intraday trading techniques you use a gap up and a gainers list. With this one, use a gap down list.
It's very simple. I'm using 10 min. charts below. If a stock on this gap down list fills the gap and then the second or third 10 min. bar forms an inside bar you have a setup.
As with Strategy #1, place a buy stop above the high of the inside bar. A breakout above the high of the inside bar is the trigger to buy.
Place a stop order below the low of the inside bar, other area of your choice, or use another stop method.
Here's some examples of Strategy #7.
Intraday trading techniques that capitalize on a short squeeze frequently see trades go parabolic, and then turn down almost as quickly. So you might consider using an exit strategy that really locks in profits tightly after a fast run up.