Stiffeners can be attached on one side of the plate (single sided), or on both sides (double sided). You can also use these strategies and test them out in TradingSim as well.A variety of sections have been historically used as stiffeners, however the simple flat stiffener is the type almost always used in modern designs. To learn more about this gap fill strategy setup, please check out this cool video from YouTube. This is where Tradingsim can help by allowing you to quickly scan the market for morning gaps so that you can practice fading the setup. The biggest thing about this pattern is ensuring you get enough reps in to see which gaps will fill, versus the ones that will turn and go against you. If the stock moves quickly in your favor, you can opt for more gains, but remember to trail your stops.In this article, we displayed ratios of 5 to 1. Make sure your risk-to-reward ratio makes sense.Always put a stop loss above the reversal candle on a bullish gap and below the reversal candle on a bearish gap.Enter the market on a reversal candle after the gap.Do not attempt to trade really large gaps of high float stocks.When you trade Reversal Gap Fill, try spotting gaps between 3% and 10%.Morning Reversal Gap Fill represents a shift in the market momentum, which results in a direction change.Remember our first target was $29.69, so this represents an additional 43 cents in profit. In the Yahoo example, we use this exact stop strategy and follow the trade lower until Yahoo enters a trading range and ultimately breaks higher. We can use the area above that candle to adjust our stop. The next candle in the row is bullish and small. A simple method you can use is to look for bullish candles on the way down and to place your stops above the respective candle.Īs the stock continues in your favor, you continually adjust your stop to lock in your profits. Now that we figured we want to expand our profit target, we can’t just fire and forget. This represents a 5 to 1 risk reward ratio. At this point, you could close the trade, and it’s a winner with a profit of 2.5% on the trade. The second candlestick completes our morning reversal gap fill target (green horizontal line). The next two candles are bearish and are relatively large. We short Yahoo and just like the Bank of America trade mentioned above we place our stop-loss order right above the head of the hanging man. This gives us a signal that the bullish gap could turn into a counter trade opportunity. Yahoo starts with a 3.03% bullish gap, followed by a hanging man reversal candle. When a stock goes in your favor quickly with little to no push back, these are the ones you want to possibly hold on for bigger profits.Įxtended Target – Morning Reversal Gap FillĪbove you see the 5-minute chart of Yahoo. Not only does it fill the gap quickly, but look at the size and volume of the candle. In the chart below, notice how the stock fills the gap within 10 minutes of the open. It’s tough to see, and I hate to admit it, but early on in my trading career, I was the guy still holding on for the rally back to the high of the day. But they don’t just roll over a little they make sure anyone holding a long position is just bludgeoned throughout the entire day. Now, what about those reversals that lead to all day holds? The trades that gap up and just fail on the open. For you conservative traders out there like myself, you will want to close the trade out right at the gap. In the previous example, we closed the trade out slightly beyond the gap fill. One thing I have yet to master but it can take your trading to the next level is knowing when to expect more from your chart setup. When Should You Expect More From the Setup? This is a risk-reward ratio of 5.5, which is what you want to see for this type of setup. Remember our risk on the trade was approximately 14 cents. It took all day, but BAC finally hits our target in the $15.30 area which gave us a profit per share of 77 cents. Since BAC is a slow mover, you had to be patient in the trade. I went with that target because it’s a little further than the gap, but still above the swing low of $15.20. The profit target is the low of the candlestick preceding the gap. We put our stop loss right above the head of the hanging man candle pattern as shown in the image above. Well on the next candle, we short the low of the hanging man with an average price of $16.07. This gives us a short trigger which we can use to fade the gap. Notice that the first 5-minute candle after the gap is a hanging man reversal candlestick. The stock opens with a 5.61% gap to the upside. Above is a 5-minute chart of Bank of America.
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