Gap trade guidelines

1. Take only those gaps that occur between R1 and S2 pivot levels.
Exceptions to this rule can be made if price opens near another
significant level that has a high probability of providing
support/resistance.

2. YM gaps should be as least 20 points and not more than 60 points.
If it doesn’t meet the criteria pass on the trade.

3. Never risk more than 1.5 percent of total trading capital per trade.

4. Around 6:20am, evaluate premarket volume in key institutional
stocks to gauge the power of the gap. Specifically, MXIM, NVLS, KLAC,
and AMAT, write them down on the daily market worksheet.
Volume guidelines
* light- less then 30,000 shares
* moderate- 30,000 to 80,000 shares
* heavy- 80,000 + shares

Only take full positions on the gaps that are less then 30,000 shares
in the pre-market. These trades have the highest possibility of
filling the same day. Moderate and heavy volume days should be treated
with care.

1. Pre-market volume takes precedence, if a gap occurs with premarket
volume over 80,000 shares and doesn’t fill, look for the first
buy/sell signal in the direction of the gap. This may be a pullback to
a pivot or a squeeze play after a consolidation of the mornings gap.

2. When the daily pivot preceeds the prior days close, look to lock in
any gap trade profits at the daily pivot level. More often times then
not it will consolidate and bounce.

3. Record unfilled gaps and keep their price level handy on post it
notes, the market will often fill open gaps in 10 to 15 days.

4. Stay in the trade until the gap fills or the stop is hit

5. For light volume days the target is a complete gap fill, on
moderate volume target will be a half gap fill.

Avoid gaps plays on the following days.
* options expiration fridays
* rollover thurs. And the day after that.
* first trading day of the new month.
* if after a narrow range day, the next days gap is larger the the
previous days range
* gaps where the opening prices are outside the previous days session
high or low.