We see gap ups and gap downs in EOD charts. Technically there is none. (Chart Interval : Daily) Each candle or price bar in the chart represents one day's session. What is missing is the candle or price bar for the pre martet session which creates the effects called gap ups and gap downs. The above explanation is purely from technical point of view. Not your cup of tea From positional trader's point of view, these gaps are valid gaps because the premarket session is none of his business or atleast he has no control over it. Why gaps vary? There will be always gaps between each candle or price bar from minor to major depending on the intensity of overnight speculations caused due to news and events or some unknown influences. Risk management suffers Relatively positional trading is more risky than day trading because EOD gaps are bad from risk management point of view. In day trading price spikes are as bad as EOD gaps is to positional trading. Yet momentum trading helps day traders to avoid such spikes. We cannot gaurantee the same in positional trading.
Actually, there are gaps. Some don't indicate them as a matter of policy. Some indices reflect gaps. Others show the opening price to be the same as the prior close, regardless of true gap.
Funny that you bring this up. As a swing trader I was wondering how the hell could day traders make money when a stock jumps up 2% or more from overnight news or earnings or whatever? The move is done largely by the time market opens. As a swing trader I can tolerate the swings in price because of how I set my stops wider than a day trader and I also tend to buy at support. Many of these gaps tend to occur to shake out weak longs and weak shorts with tight stops before eventually continuing in their intended direction. A recent example in MOS shows what I mean. I bought at support at $30.31 with several gaps in price both up and down only to see intended direction appears to be continuing. Notice the blue support line has not been broken. I dont understand and I do not day trade but to me looking at charts like this make me think its MUCH more difficult than what I do.
Just imagine that the chart you posted is a day trading chart. The only difference will be the huge gaps will not be there. In eod chart like the one you posted has huge gaps because of missing candle for pre market session. Studying the chart is same for both positional and day trading. You can apply the same technique in day trading too.
I am aware that many of the gaps would go away if you include pre and post market trades/futures but a day trader trades during normal market hours and those gaps would still be there its just that they are trading where the gaps do not exist. My point was that I welcome much of those gaps because of the way I trade. I love waking up to find my trades up 2+% overnight. Of course it can go against me too but thankfully that happens less often and when it does I usually have a profit already in play so I dont make as much and may even take a small loss. In day trading that move is done when you start trading at normal trading hours and hopes for profit exist only if the move continues as it did premarket. My goal is to find volatility that is about to pop in the intended direction so that I can make more than the buy and hold crowd. Day traders wait for the pop and hope the pop continues throughout the day but I anticipate the pop as much as I can to make use of the volatility. Bottom line is it appears to me that day trading is much harder to make money and more time consuming than swing or position trading. But then again thats why I dont day trade.
Swing trading is tame and boring...that's like waiting ...12 hours for a sports match to finally finish. Why wait that long for results, when a shorter, and more predicable, version is available But like you mentioned, it can be potentially more harder and it's definitely not for everyone. Leverage shorter time frames...for more explosive, overall gains.-- But on the flip side of that coin, is an equally quick destructive path to ruin if you don't know what you're doing.
The same anticipation works in day trading too. Only difference is that you may see a gap, day trader may see a spike instead of gap. (When you have time assess your strategy in day trading scenario.) Bottom line is chart reading on EOD or day trading chart are same and the results are also same except that day trading does not go much against the anticipation like it may happen in positional trading. The unexpected overnight developments of speculations may cause change in direction in an unexpected way. Hence positional trading is like hurdles race whereas day trading is like regular track race. At least the hurdles are spread uniformly for the athletes. It is not so for positional traders.
I disagree that shorter trades are more predictable. At least for me. Also, one of the many reasons I swing trade is my career. I don't have time to watch the markets every minute of the day. I check in on the markets usually 2x a day and often times I can only check in after market closes. So for me swing trading based off of EOD charts is ideal. I base my trades off of weekly charts and enter based off daily and hourly charts. Anything smaller timeframe than that is rarely helpful to my style of trading. Plus with swing trading I can go to the beach and enjoy my day if I am off. I don't have to worry about catching every nuance move of the market. You guys that day trade and are successful at it I applaud because I know I am not cut out for that.