![]() We’ll then factor in the risk if I was shorting. I would draw a line at premarket high and then premarket low. How do you plan out your trading plan technically? Our stock remarket was hanging around a pair of numbers. ![]() We now know most of the penny stock gap ups are short set ups. That is generally the case for a lot of penny stocks we’ve seen. First the news was fluff, and then all the bag holders were just dying to sell their stock and get out. That's why the gap up on the stock had little to no chance of holding and going higher. You could bet they have sell orders already set automatically, and they are just dying to get any of their last remaining funds out of this stock. Investors from years ago have been stuck, and the dip buyers have been stuck too. Just ask yourself, “if you’ve been holding this stock for years and losing money, would you continue holding or get out when the stock finally gaps up 80% one day?” In this case, the stock has so many bag holders on the daily chart above a certain amount. Remember the dip buyers I mentioned earlier that came into this stock to buy it at a discount? Well, those are the new bag holders that are underwater, along with the people who didn’t sell their shares at break even. That creates yet another huge gap down on the daily chart. It seems like the company also took advantage of the pump to do offering or dilute their shares some more. This is a buying opportunity for potential profits.” Those buyers who bought into the PR drove the stock price up, but the bag holders from before see this finally as a time to cash out at breakeven or at a smaller loss.įinally, those people got to get out of the stock sell off near the gap fill price. Why did it go up? That’s because these are buyers who thought, “hey the stock was finally at a discount. One day, the stock released PR that drove the stock prices up to where the gap fill is. ![]() What's the story here? Ask yourself, “who is stuck in here?” Well, all the people who bought prior to a certain point were stuck holding the bag. If you zoomed into a smaller time frame on the daily, you’ll often see huge gap downs of that stock. You should be asking who is in pain, especially when it comes to these penny stock companies. The stock market is composed of buyers and sellers. They are not just candlestick patterns or charts of a stock, they are people, participants in the market. This is how I would recommend looking at stock charts by the way. All these people from the past few years have been underwater. How do you find these bagholders? They are people who have been holding the stock and have been invested since prior to the reverse split price. ![]() You might be wondering, “what are bag holders?” Bagholders are investors or buyers of a particular stock that’s been stuck in the stock for months or years and are unable to cash out because the stock they are holding has either just been losing money or diluting on their shareholders. These penny stock gap ups usually sell off, and they are some of my favorite short set ups. Now, a lot of penny stock chat rooms will be saying, “the head line has the keyword “license”, or “agreement”, so this is the stock we must buy for a breakout higher.” Well, that’s generally not the case at all. They released PR about a licensing deal in China in the early morning, and shares went up from close the night before to an 80% gap up in the next day premarket. That’s exactly what our example stock did. We’ve seen this before with stocks like Ocean Power Technologies($OPTT) and Aldeyra Therapeutics Inc.($ALDX). These sketchy companies do a reverse split, release some PR and drive the share prices up overnight. Let’s use a small cap penny stock gapper that is a reverse split penny stock. To start we will look at some small cap penny stock gappers. I’ll go over how you can identify a long or a short set up and how to create a technical trading plan around it. In this article, I’ll be going over how I analyze and trade gap ups on both penny stocks and large cap stocks. Not all gap ups are created equal, since some stocks will sell off on gap ups while others will run higher. While there are tons of YouTube videos and articles out there that teach you lessons on how to trade these gappers technically, I think it’s more important to understand the “WHY”, or the psychology behind these gap ups, especially if you are a beginner to day trading. What are gappers and how do you day trade these gap ups? We see stocks, either the small cap penny stocks or the large cap mid cap stocks gap up every single day due to PR news or earnings reports.
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