What a long, strange trip it’s been! The SteadyTrade Paper Trading Challenge is in the home stretch, and today, host Stephen Johnson is trying to guide his remaining student Liz to victory!
In the episode, Stephen guides Liz through some great new strategies to add to her repertoire. Traders will want to listen up as he explains two of his favorite patterns: the beloved gap and crap pattern and its companion, the gap and go pattern. Will these patterns help take Liz all the way to the winner’s circle?
Note: Don’t miss this episode on YouTube, because Stephen pulls up several charts to give an intensive overview of these valuable trading patterns!
New Month, New Rules
With a new month, there are new rules for the Challenge, and only 25 trades are permitted in March.
Unfortunately, this means trouble for Liz, who has come to rely mostly on scalping techniques to grow her paper trading account.
The key to her success has been making lots of trades with tiny profits that have accumulated to an impressive account size. But to get ahead with the new rules, she’ll have to change her strategy, because her trades are limited.
Luckily, Stephen’s got her back with some of his tried and true patterns.
Mind the Gap
Before you can understand either of the patterns introduced in the episode, you must know the meaning of the gap.
Nope: We’re not talking about a chain store selling khakis. In trading, an overnight gap measures the difference between yesterday’s market closing price and today’s opening price.
A stock is considered a “gapper” when it gaps up from the previous day’s closing price. Often, this happens in the pre-market hours. When a stock gaps like this, it can create opportunities for traders.
Gapping Patterns for Traders
Follow along as Stephen introduces Liz to two patterns that she (and you!) can take advantage of: the gap and crap pattern and the gap and go pattern.
In either case, the stock has gapped up from the previous day’s close. However, it could go in one of two directions.
With the gap and crap pattern, the idea is that the stock won’t hold its spike and will go down rapidly when the market opens. While the spike may entice many traders to buy in, the ascent is unsustainable and the stock’s price will likely crash and burn. As Liz puts it, this type of stock “needs a diaper”!
With the gap and go pattern, the idea is that the stock will continue its ascent and the price will continue to go up once the market bell rings.
Stephen offers up several chart examples of each pattern to help both Liz and listeners understand how to identify them.
Making the Most of These Patterns
In the episode, Stephen and Liz how to make the most of these patterns, including tips such as:
- Don’t get short premarket. Or if you must, go small. Stephen can say this from experience: he’s literally lost thousands by going too big!
- Build a strong case. If you want to trade these patterns, you still have to make a strong case for the trade. Learn about what to look for in daily and intraday charts, and how to read into a double top to make a case for your trade.
- Entry and exit points. Timing is everything when it comes to these patterns. In the episode, Stephen offers great tips for how to determine the most intelligent entry and exit points.
- When to go short versus long. Stephen and Liz also talk about how to discern opportunities that are better to go long, and those that are better to go short, including what indicators to look at, and what sort of information you should look for in the news and in SEC filings.
Curious about something?
Do you have a question or comment about something from the episode or trading at large? Leave a comment below, or on YouTube!
Thanks for tuning in to the SteadyTrade Podcast. Stay tuned for weekly episodes featuring the hottest topics for aspiring traders!
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Be sure to bookmark the nasdaq trade halt codes Tim Bohen mentioned at the beginning of the video! https://www.nasdaqtrader.com/Trader.aspx?id=tradehaltcodes