The gap and go strategy is one of my favorite strategies and works as a day or swing trade.
The gap happens when a stock price rises significantly above the close price of the previous trading days.
Before using this strategy, I strongly recommend having a scanner handy that helps you search for stocks with good volume in the pre-market.
When using this strategy, my goal is to ride the momentum and exit as soon as I take my profit.
The Gap and Go strategy is not complicated at all…
I look for stocks with the recent great news that opens above a major resistance area and also has a good range.
What I do is wait for the market to open and then watch the stock I have my eyes on to gap up. I’m basically looking for a continuation of the momentum the stock gained overnight.
Here’s How It Works
This strategy is a very popular trading strategy among day traders…
When trading momentum, it’s important to know if the stock closes at the highs or near the lows.
Most of the time, trading volume is low during the pre-market hours, but there are exceptional cases where there’s good volume…especially after some positive news or earnings announcement.
The pre-market hours are the best time to gear up to take advantage of the momentum that’ll happen when the market opens.
Because when trading the gap and go, a key factor to take note of is the level the stock opens relative to the recent high.
Basically, you want to measure the difference between yesterday’s market closing price and today’s opening price.
Being early helps because you will be adequately prepared once the market officially opens.
- Whenever I’m trading the Gap and Go strategy, I’m looking to tick these boxes;
- There’s a very recent positive news release or earnings announcement that causes the stock to spike
- The stock has a heavy volume
- The stock opens above a major resistance level
- Finally, there has to be a good range between the previous resistance level and the new support level.
From my experience, this strategy works best when these conditions are met.
Here’s an important point to note: Once the market opens, things move very quickly, regardless of how high the pre-market volume is during the pre-market trading time. So you have to monitor the price movement closely.
That’s why I like to take profit and get out quickly when I catch the move. If you mindlessly stay in hoping for more, you might get burnt after the gap gets filled.
Remember the old wall street saying…“pigs get slaughtered”
Want to see an example of this strategy?
In this small account strategies section of your RagingBull dashboard, I included a video where I go into more details and break down how this strategy works with a good example.
Some Things To Keep In Mind
There’s no strategy that is 100% effective. And just like others, the Gap and Go strategy has its ups and downsides.
The gap and go strategy can be ideally used on stocks because gaps are more common due to the fact that they operate during fixed hours.
Most traders like to stay on the safe side by using this strategy with large-cap or mid-cap stocks with good volume.
That being said, the Gap and Go strategy can be very risky (especially for traders who are greedy). You also have to be careful to avoid trading shady penny stocks that can easily be manipulated.
It’s important to know what drives the stock price when looking to use the Gap and Go strategy
You should be hesitant to take action and avoid trading on impulse if all you have is only general market news.
I like to have a clear understanding of what’s going on so I can evaluate if the news has enough power to continue the upward price movement.
The last thing you want is to be the last person in the queue before the price flips.