re: Trading Gaps in stocks <does any trader out there continually play the "overnight gaps"?>
Yes, I do it all the time and have developed a high hit rate, which I probably couldn't fully explain - a lot of it is still intuitive. I generally will take a sizeable position mid to late day, looking to sell into the gap on the open. There are many things you have to look for, and (let me *emphasize*), look OUT for. The first criteria is, you have to learn how to identify the proper market environment (as in, not now). To enter, a lot of traders look for consolidation (say on the 5-min chart) late in the day, followed by some strength (a breakout with size buyers) near the close, in the context of an overall uptrend on the day chart.
Earlier this year was an excellent time for this in wild stocks like AOL, YHOO as well as the conventionally volatile techs like INTC, CSCO. I hate to sound like a broken record or a promotion for Pristine(.com), but they do teach gap-trading and they state flatly that it's a major % of their profits (no affiliation). There is also a lot to learn from Jeff Cooper (www.tradehard.com) on this topic (BTW, Jeff's one of the most sophisticated short-term stock-trading experts actively sharing his techniques at this time, that you can learn from, IMO). Larry Williams has also published many excellent gap-trading techniques/setups for stocks (he came up with the famous 'Oops' trade, for example. Other good sources on gap-trading technique are Larry Conners and Linda Raschke, all of them have published books which I highly recommend.
I wouldn't recommend trading gaps overnight until you've been trading at least a year - gaining the appropriate seasoning. The risks are much higher, and there are a lot of things to watch out for. Even then, you have to have the stomach for it - occasionally you will get creamed. Many, many gotcha's on this one, though - perhaps someone else will post a tutorial (this one could take a few books to give it proper treatment...)
-Steve |
