4 Advanced Gap Trading Tactics

= Transitions

Pre-Market

Gapping Up

Opening

Gapping

Flat

Down

Where are we …?

Market Cycle

Transition Among Phases

Breakdown Patterns

1

2

A

B 1

2

C

2

3

Flags

3

Flags

1

C

3

B A 2

3 1

2 Breakout Patterns

3 1

4

Mini Market Cycle Trade Execution areas

4

Price Action

2

4

1

4 Breakout

4 4

B Major Up Trend Higher Highs Higher Lows

3

•

ENTRY

Higher highs and higher

3

1

•

2

C  A

Pre-Market

Gapping Up

Once Markets open

Opening

Gapping

Flat

Down

Continues

Continues

Continues

Higher

Higher

Higher

Sideways

Sideways

Sideways

Fills the Gap

Fills the Gap

Fills the Gap

Rallies or  Pullbacks

Breakouts

Higher Opening Ranges

Price Action

Ideal trading situation Entry

ENTRY

LONG Entry Up trend

Stop loss

0 Pre Market Session Extremely Aggressive

1 Morning Session Aggressive

Friday-Monday Breakout/Breakdown Prior Day Highs & Lows

Daily Swing Strategies (i.e., Bull/Bear Traps)

Higher Highs Lower Lows

2-Bar Reversals 3-Bar Reversals

2 Mid-Day Session Moderate

3 Afternoon Session Diligent

Higher Highs Lower Lows

Higher Highs Lower Lows

Higher Highs Lower Lows

Opening Range Breakouts

Opening Range Breakouts

Opening Range Breakouts

2-Bar Reversals 3-Bar Reversals

2-Bar Reversals 3-Bar Reversals

2-Bar Reversals 3-Bar Reversals

2

2 1

3

3

1

1 2

Up Trend 1 Up Trend breakdown

2 Breakout

3

3 Breakdown

3 1

2 1

2

3 1

Up Trend

2 3

1 Gap Up Trend breakdown

2 Gap Breakout

3 Gap Breakdown

Down Trend breakout Down Trend

Breakout

1

Breakdown

2 3

1 2

3 2

3

1

1 2

3

Gap Down Trend breakout

Gap Breakout

Gap Breakdown

1

2

3

Down Trend 3 3 1

1

2

2 1

2 3

Transition Among Phases

T2-3 Transition from Phase 2 to 3

Down Trend Breakout

Trade # 1

Trade #2

Trade #3

Profit

Lose

Lose

2R

1R

1R

T3-4 Transition from Phase 3 to 4

Potential gaps in W Patterns & Variations

T1-2

T4-1 Transition from Phase 4 to 1

Transition Among Phases

Up Trend breakdown T2-3

Trade # 1

Trade #2

Trade #3

Profit

Lose

Lose

2R

1R

1R

T3-4

Transition from Phase 2 to 3

Potential gaps in M Pattern & Variations

Intraday T1-2 Transition from Phase 1 to 2

T4-1 Transition from Phase 4 to 1

1.

Identify “gap” and whether it violates the conditions for defining trending price action

2.

Use OR – “opening range” strategies to anticipate the setups

3.

For up trend breakdown, find previous Phase 2 price action

4.

For down trend breakout, find previous Phase 4 downtrend

5.

Use Fibonacci analysis on the “previous” move

6.

Consider breakout/breakdown as a retracement first and identify 38%-62% levels (i.e., first preliminary targets)

4

4

Price Action

4

Ideal trading situation

4 4 4

ENTRY

LONG Entry

Natural pullbacks in price action

 Are the e-mini futures t r e n d i n g  or t r a d i n g s i d e w a y s

Higher Timeframe

Price Action

Price action from prior day close Gap Up

Flat Open

Gap Down

Phase 2 Up trend

How much?

Higher Timeframe

Price action from prior day close Gap Up

How much of a gap?

Gap 2. Bullish Rally Flat Open

Prior Day Close

Gap Down

Phase 2

Higher Timeframe

Price action from prior day close Gap Up

Prior Day Close

2. Bullish Rally

Flat Open

Gap How much of a gap?

Gap Down

Phase 2

Today

Previous Day Close(s)

1

Scenario #1

Scenario #2

Scenario #3

Pre-Market

2

3

Price Action

Ideal trading situation Higher Opening Ranges ENTRY

LONG Entry

2B/3B Reversal & crosses back into OR

30 min High

2B/3B Reversal

Intraday

30 min High

2B/3B Reversal

Use daily opening of price action to gauge intraday momentum

Open

Open

1 2

Reference for Gaps

Stops M-Pattern

Initial Stop

Fibonacci Retracements

(1R)

 A C 2 1

Gap 3

B

Flags

Preliminary target

Monday

Tuesday

High 5 min High 5 min Reversal Pre-Market Gap

Late Day Breakdown

Gap Fill

Monday

Tuesday

5 min High

High

Pre-Market

Gap & Gap Fill