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I'd like to share with you one of my favorite stock trading tips: Sell positions and lock in profits on "lonely gaps".
I know what you're thinking, "Andy, what the heck are you talking about? What is a lonely gap? Sounds like something you made up."
Well, yes--I did make up the term "lonely gap." See, a gap open occurs when a stock opens at a price significantly different than it closed at on the previous trading day, leaving a space (gap) when you look at the chart. A lonely gap occurs when the stock is gapping up without the help of the overall market. In other words, the stock is gapping up all by itself and without the conviction of the broader market to sustain the move (note that this is best used on stocks that do not have MAJOR news events driving the gap).
For an example, let's take a look at the trade of Flextronics (FLEX | Quote | Chart | News | PowerRating) that we just exited for a nice profit on Monday in the DaytradeTeam Small Cap Swing Trading System:
On the chart, you'll notice that on Monday morning, FLEX opened significantly higher than it closed last Friday, creating a gap up on the chart. In addition, this was a lonely gap, because the Nasdaq and SP broader markets were only slightly higher at the open and starting to sell off just a few minutes into the trading day.
This made us hit the sell button very quickly. We locked in a profit of almost 5% in just a few days, with the bulk of the gains coming on the overnight move. After selling, we watched with pride as the stock fell 30 cents through the day to close at 10.85, happy that we took the gift given to us by the lonely gap.
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Andy Swan
Andy Swan created and co-founded DaytradeTeam five years ago on a principle of empowering individual stock and options traders with the techniques and analysis methods typically reserved for elite professionals. His expertise in technical analysis and commitment to educating members earned DaytradeTeam a top-ranking among advisory services for several years.
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The Connors Group, Inc. ("Company") is not an investment advisory service, nor a registered investment advisor or broker-dealer and does not purport to tell or suggest which securities or currencies customers should buy or sell for themselves. The analysts and employees or affiliates of Company may hold positions in the stocks, currencies or industries discussed here. You understand and acknowledge that there is a very high degree of risk involved in trading securities and/or currencies. The Company, the authors, the publisher, and all affiliates of Company assume no responsibility or liability for your trading and investment results. Factual statements on the Company's website, or in its publications, are made as of the date stated and are subject to change without notice.
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