Wednesday, August 4, 2010

How to play gap ups? - Example

A while ago, I had written a series of posts on the mentality behind chasing gap ups and how to play them. I quote from Pat 3 of that series:

"If the stock gaps up above an important resistance, wait for a successful test of this resistance, which has now become support, and then enter the stock. For example, the chart was forming an ascending triangle until yesterday and today gaped up above the horizontal line, wait for a bounce off this horizontal line before entering the stock."

Well, let's look at the chart of ATPG, a stock I had mentioned in the watchlist yesterday saying that there was a high probability of short squeeze happening here. This is the chart at the close yesterday. I had marked on the chart that 12.75 was the important level here and the stock could run if it crossed that level. The stock closed at 11.99 yesterday.

And this is the chart after today.

The stock made a low of 12.72. As soon as one saw it successfully testing the support at 12.75 (which was resistance yesterday), one could have got into the stock without fear despite the huge gap up.

The stock closed up almost 16% today. I rest my case. Take care and good luck!
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Anonymous said...

just a new trader getting insight into the markets. Your thoughts and blog help me understand the markets a lot more than I used to. Even though I didn't play ATPG today, I appreciate all the work that you do for us. Thanks.

Bill said...

Nicely done. I don't see too much resistance on the macro front this week, unless friday proves surprising my guess is we cruise through next week and maybe even August but that may not mean DOW 11,000 NASDAQ 2500 or SP 1200, but the markets are starting to react positive to any news that isn't negative. Which may be optimistic and problematic but it seems to be a trend over the last month. Thanks for the post.

positiontrader said...

Thanks for the comment Anon. Comments like these make this blog and all the effort that goes into it worthwhile. Thanks for reading!

All the numbers that you say are too far ahead Bill. Let's take it a day at a time. Whatever the trend is, the important point is we are not the ones left holding the bag in the end.I don't have much time to trade the coming one week due to an impending move but I will try to keep the blog regularly updated.

Thanks for reading guys!

Anonymous said...

Hi ,, I,m El_Mono,,{lol} Ya I played ATPG on that run yesterday ,thank you for the commentary,that got me in ,I played it with a tight trailing stop so as not to let a green trade turn red & got taken outta the trade for a small + . But it was nice to see how it turned out and how the 12.75 break played along .
I,ll be more positive next time {doubting Tomas lol}
p.s. Sorry I don't have an id ,,

ppmoore said...

Great comment MT.

I also followed ATPG yesterday, but was afraid to pull the trigger.

Thanks again for this blog.

positiontrader said...

Thanks for the comments guys! And here is the trick to being more positive or losing fear.....Just start accepting the fact that there will be losses and you can't be right all the time. And that's exactly what those stops are for. Once you accept the above, you will become more positive. So, you become more positive by accepting that you will be wrong. Funny how that works, doesn't it?