Market Curiosity: Exploring Markets And Systems

December 9, 2010

Matching Visualization With Decisions Around Gap Ups

Filed under: Systems — Tags: — Jeff Fitzmyers @ 8:13 am

I was making the same mistake again: Not selling a long swing trade, on a big gap up, when prices are extended. And these are the easiest trades to make: If a stock opens with a significant gap up and keeps doesn’t drop much for the first hour, it’s likely to stay up the whole day. If not it’s likely to close the gap. So if it starts dropping, sell. The first support is yesterdays high, if price drops through that, the trend is likely down for at least a few days.

After pondering a while, I understood that watching the bid ask ladder gave me no reference points to make a decision.

I was letting my eyes enjoy the pretty numbers dancing around instead of having a simple framework to make decisions. I was doing this partly so that I could watch the tape on swing trades. Big mistake: I learned to trade with charts, not ladders. Now I only use the ladders to help place option trades. The rest of the time I keep small hourly charts open. What a relief!

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