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Winning Secret for Short Term Trading 1

Buy Open Gap Down at support

August 26, 2008*

That is, when stocks gapped down at open with/without market gap down, but the gap down price is at around its previous strong support levels, this will present a very good profitable short term buying opportunity.

Example 1. FRE on August 26, 2008

This stock has been traded in $2.50 - $3.50 range last two days. It gapped down at open and returned to $2.50 level for the third time. We used half of the cash in our Short Term Portfolio, bought 50k shares and made a killing in just few days. See the Chart below and our Short Term Portfolio Trading Record (FRE - 8/25/2008 - 8/29/2008):

Example 1. BAC on January 23, 2009

Take BAC as an example. The company reported a very bad earning result after market closed on January 22, 2009. That was the company's first quarterly loss in its 17 years of history. In its previous days' trading, the stock had tested $5.06 - $5.30 low twice and both bounced back. The stock closed at $5.06 on January 20 but gapped up strongly on Jan 21st. The stock tested its low at $5.26 on Jan 22 again and bounced back. We can say that $5.06 - $5.30 should be its strong short term support. On Friday, January 23 2009, the stock gapped down at open and touched its support at $5.30.That will be a rare chance to buy low. The stock closed at $6.24, a 8% gain in one day.

See the chart:

Example 2. KEY on July 2, 2009

KEY is another stock in banking sector. Its all time low is $4.40 and has spent the whole month of June 2009 in $5 - $6 range. The stock stayed at $5.00 level the whole day at $5.00 level on June 25 2009, shut up up in June 26, gapped down again at open in June 27 but bounced back strongly. It gapped down again on July 2, 2009 together with market weakness. This presents a good long entry point. We bought it at $4.99 and took a good profit at $5.31 one hour later. We bought it again before market closed a $5.01. See our: Short Term Portfolio Trading Record (KEY - 07/02/2009):

Example 3. LEAR on July 2 2009

LEAR is an auto parts company. The company filed chapter 11 protection after hours on July 1, 2009. The stock gapped down after market open on July 2, 2009 as expected. It opened at $0.33 and immediately reversed. You can see that $0.33 - $0.35 has been its previous strong support. The stock returned to downtrend after it reached its previous high of $0.53, a 50% gain in one hour. The stock closed at $0.23, a loss of 50% in one day. But we can still make a 50% profit using our winning formula even the stock had a huge loss in the same day. See the Chart below and our Short Term Portfolio Trading Record (LEA, LEAQ - 07/07/2009 - 07/09/2009).

* This article was first published on August 26, 2008 and added more real trading examples in later days.

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