Trading Gaps requires patience and a great deal of confidence in the ability of price to fill a void. Depending on your style, it may require a larger stop. Possibly adding to a short position at the day's perceived high or adding to a long postion at the day's perceived low. Also, you may find that holding a postion overnight is necessary.
Determine if an opening GAP is justified. Watch the first 30 minute bar. If the 10:00 reversal period does not fill the gap, then the trend may be strong that day in the direction of the GAP. Why did the GAP occur? Was it economic data? Did it bounce on a key fib cluster or channel line at the end of the previous day? Reference the daily chart and correlate it to your shorter time frame trading chart. GAPS in the daily bars are very powerful.
Put up a daily chart. Reference the open and the previous close. Mark points where this void was not filled. Stretch a fib retracement grid across your chart. Do any of the key Fib levels correspond to any GAPS on your chart? Be aware of these key support and resistance levels and transpose them to your shorter time frame chart.
When watching for the close of an AM GAP...keep an eye on all the major indexes. Often the leading index will fill and then reverse before your favorite index completes its fill. If this happens, there is a possibility that your index will follow the path of the leading index. For instance, on an opening GAP to the upside your index may only return to the open on support and then reverse, possibly filling later in the day or the next morning. Or possibly filling in say, 20 or 80 days.
Yeah, which big players buy this and how do they hedge with it? It would be great to understand........ Michael B.
There are a bunch of us on ET who follow NA's "print it out" method! I highlight the ideal entries in yellow, then my actual entries in blue. I print a weeklong 11 min chart, then a 2 min chart for each day (the ones I trade off of). I do this every weekend. I believe this helps me adapt to the market. Also, I can see where I needed a little more patience.