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How to Day Trade Gappers and Stock Gap Ups - Day Trading Psychology for Beginners - YouTube
Channel: Humbled Trader
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What are gappers and how to day trade these
gap ups? We see stocks, either the small cap
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penny stocks or the large cap mid cap stocks
gap up every single day due to PR news or
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earnings reports. While there are tons of
YouTube videos out there that teach you lessons
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on how to trade these gappers technically,
but I think itâs more important to understand
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the âWHYâ, or the psychology behind these
gap ups, especially if you are a beginner
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to day trading. Because not all gap ups are
created equal, some stocks will sell off on
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gap ups while others will run higher.
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So in this video Iâll be going over how
I analyze and trade gap ups on both penny
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stocks and large cap stocks. Iâll show you
How you can identify a long or a short set
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up, and how to create a technical trading
plan around it. So if that sounds like a strategy
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you want to learn, make sure to hit that like
button and subscribe for more videos like
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this in the future!
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So to start we will look at some recent small
cap penny stock gappers. If you want to skip
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the penny stock section and go straight to
the mid and large cap gap ups. Iâll leave
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a timestamp here.
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So a recent small cap penny stock gapper thatâs
fresh from our memory was from Tuesday, which
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is $RNN. This is another of those recent reverse
split penny stocks. I believe they did this
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on April 12. It was a 1 for 12 reverse split.
That seems to have been the theme the last
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few weeks. These sketchy companies do a reverse
split, release some PR, and drive the share
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prices up overnight. Weâve seen this recently
on $OPTT and $ALDX, as Iâve mentioned in
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one of my previous videos.
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And thatâs exactly what $RNN did. They released
PR about a licensing deal in China early morning
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on April 16th. Shares went up from 5 dollars
close the night before to 9 dollars premarket.
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That's a 80% gap up.
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Now, a lot of penny stock chat rooms will
be saying, the head line has the keyword âlicenseâ
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, or âagreementâ. So this is the stock
we must buy for a break out higher. Well,
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thatâs generally not the case at all. These
penny stock gap ups usually sell off and they
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are some of my favorite short set ups. Why?
Because of bag holders. Now you might be wondering,
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what are bag holders? Bagholders are investors
or buyers of a particular stock thatâs been
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stuck in the stock for months or years and
unable to cash out, because the stock they
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are holding has either just been losing money
or diluting on their shareholders.
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But how do you find these bagholders? Well,
pull out the daily chart of $RNN. These are
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bagholders. These are people who have been
holding the stock and are invested since $84
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dollars, or $7 prior to the reverse split
price. All these people from the past few
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years have been underwater. This is how I
would recommend these stock charts by the
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way, these are not just candlestick patterns
or charts of a stock. These are people, participants
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in the market. The stock market is composed
of buyers and sellers. And you should be asking
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who is in pain, especially when it comes to
these penny stock companies.
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And if we zoom into the more recent time frame
on the daily. There was a huge gap down recently
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in January 2019. And another one similar one
from October 2018. So what's the story here?
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Ask yourself who is stuck in here? Well, all
the people who bought prior to October 2018
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were stuck holding the bag. One day $RNN released
PR in january that drove the stock prices
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up to where the gap fill is. Why did it go
up, because these are buyers who thought hey
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the stock was finally at a discount, I want
to buy low sell high, this is a buying opportunity
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for potential profits. So those buyers who
bought into the PR drove the stock price up
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from $12 to $20. But the bag holders from
before October see this finally as a time
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to cash out at breakeven or at a smaller loss.
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Finally those people got to get out of the
stuck. Stock sold off near the gap fill price,
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seems like this company also took advantage
of the pump to do offering or dilute their
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shares some more. That creates yet another
huge gap down on the daily chart. This time,
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remember the dip buyers I mentioned earlier
that came into this stock to buy it at a discount
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at around $12? Well those are the new bag
holders underwater, along with the people
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who didnât sell their shares at break even
when it was at $20. Now with all those people
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underwater from prices higher than $10.
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Just ask yourself, if youâve been holding
this stock for years and losing money, would
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you continue holding or get out when the stock
finally gaps up 80% one day. In this case
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$RNN has so many bag holders on the daily
chart above $10. Investors from years ago
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have been stuck, the dip buyers from October
and December have been stuck too, you bet
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they have sell orders already set automatically,
and they are just dying to get any of their
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last remaining funds out of this stock.
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So that's why the gap up on $RNN on April
16 had little to no chance of holding and
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going higher. On the daily chart the gap fill
price would have been around $11.50. Intraday
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on Tuesday premarket the stock only went up
to $9. First the news was fluff, anyone can
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tell. And also, all the bag holders were just
dying to sell their stock and get out.
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And that is generally the case for a lot of
penny stocks weâve seen recently. Like,
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$BPTH Which we will go over in a little bit.
So we now know most of the penny stock gap
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ups are short set ups. How do you plan out
your trading plan technically? Well letâs
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look at the intraday chart. RNN remarket on
April 16 was hanging around $8.5 to $9. So
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I would draw a line at premarket high and
then premarket low.
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So letâs look at the risk if i was shorting.
The risk would be the break and hold of $9
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premarket high. I donât mean to just cover
everything if the stock spikes to $9. A lot
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of times these penny stock will spike to break
the highs with buyers chasing and FOMO. But
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they donât hold. The ideal entry for me
would be to scale in short starter at premarket
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high and add to full size once the premarket
low confirms and breaks. And I personally
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prefer 10 min charts. Because it adds to my
confirmation.
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But if we look at the gap up short set up,
it offers us really good risk reward. Because
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you are risking 50 cents, to potentially make
2 dollars filling the gap. So that's good
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risk reward. Of course you shouldnât hold
this short all the way down expecting it to
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hit $5. You want to be covering in pieces
along the way.
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Next example is BPTH, I want to talk specifically
about the gap up on Monday April 15. This
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was a recent monster from March. And if you
see on the daily chart. A lot of these people
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were stuck in the high $40âs. And you bet
these people are looking for any bounce to
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get out of this stock. Especially when this
run up was so recent. $BPTH ran from $8 to
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$70 only a month ago. So on April 15 BPTH
gapped up from $16 to $26. Thatâs a ten
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point gap up. And you can already see the
market hasnât even opened yet the stock
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was already selling off its gap.
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So those are the penny stock gap up short
set ups. But there are circumstances where
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these penny stock gap ups will not sell off.
There are certain criterias and catalysts
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I look for when these gap ups hold and are
actually great long setups. But I think that
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will have to be a video on its own because
it does take some time for me to explain all
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the criterias i look for. So let me know if
thatâs something youâre interested in
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down in the comments section below, and make
sure to hit the like button while youâre
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at it. If a lot of you guys want to see that
penny stock gap up long set up video then
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Iâll make that soon for all my audience.
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So next I want to talk about large cap and
mid cap stock gap ups. Because they are very
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different from small cap penny stock gap ups.
Some recent gap up examples I I want to talk
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about are $DIS $JPM , and from this morning
$JMIA.
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For large cap stock gap ups, itâs important
to look at the news catalyst of why itâs
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gapping up. And then plan out your trade around.
Generally speaking, if the stock gapped up
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like $JPM with really good Q2 earnings report,
or like $DIS, the stock gapped up to all time
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highs after they released details and prices
about their streaming service Disney plus.
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These are real positive catalysts that will
affect the companyâs near term earning projections.
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So if large cap stocks gap up with these news.
I look to long the gap up. So for the gap
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up longs on these mid cap large cap companies.
I keep it very simple. Letâs pull up the
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intraday $DIS chart. The premarket high was
at $128. When it breaks I go long for two
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points. The stocks, when it has really good
news or earnings would hike really quick out
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of the gate.
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Again, think about the candlestick charts
as the people playing the stock. These stock
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charts are not just candlestick patterns,
these are people in the market.
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On $DIS stock, the investors, the funds fresh
money want to get in on this company. The
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good news was released yesterday. The opening
the next day is the first chance these investors
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get to enter. The stock is most likely going
to hike up really quick.
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Now if youâre not fast enough to get in
and out quickly at the premarket high break
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at the open, the first 10 minutes. The other
option for a long is during the consolidation.
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Again, if the stock has really good fundamental
news, it most likely will not sell off the
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gap up.
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You can look to enter after the initial sell
off at the open. In this case, $DIS stock
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sold off from $130 to $126. I use the 10 min
chart because it keeps me patient and confirm
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the consolidation for me. Then you can ride
it up from $127 to $130.
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I love these large gap ups with solid fundamental
news. Because when these stocks gap up and
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hold. They offer some great follow throughs
the next few days as a swing position as well.
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You can see its the same set up intraday for
$JPM. I played this along with $DIS using
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the exact same gap up long set up. Again,
really good Q2 earnings, really good guidance.
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Solid catalyst. So I long the premarket high
break from $109 to $111.
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Next I want to look at mid cap large cap stocks
that gap up and sell off. And I think the
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perfect example is from this morning $JMIA.
Also a recent IPO. While I donât invest
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in IPOâs like $LYFT. I like trading them
either long or short. $JMIA is a tech company
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offering an e commerce platform in Africa.
If you look the daily chart. It was trading
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around $27 dollars on April 15 to $43 dollars
by the close on April 16. And premarket, which
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is today. Im recording this on April 17. It
was trading around $50 premarket.
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Ok letâs think again about all the people
involved in this stock. There are the investors
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from two days ago who got in at $27. And there
are also dip buyers, the swing traders who
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got in yesterday at $40. The investors, they
pretty much doubled their investment in 2
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days. Thats like the fastest growing investment
after bitcoin two years ago. When you have
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100% ROI in two days, wouldnât you want
to sell and perhaps reinvest later on?
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As for the swing traders, thatâs me by the
way, who got in the day before around $40.
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You wake up the next morning premarket and
see your position up $10. What would you do?
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Of course I would sell. I would take my money
and run. So you need to think of all the players
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in this stock, do they have more incentive
to buy more, or sell.
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Thatâs why the $JMIA gap up was more of
a short than a long. This stock gapped up
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10 points overnight NOT because of fundamental
solid catalysts like $JPM and $DIS. This stock
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gapped up because it was a recent IPO and
was hyped up.
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So these are the day trading gap up strategies
I personally use, both for penny stocks and
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mid cap large cap stocks, you know the real
companies. To summarize, when trading penny
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stock gap ups, look for potential bag holders
on the daily chart, look for SEC filings and
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do some quick 10 min digging on these companies
like I showed you in my other videos. And
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short the gap fill. Again if you want a video
on when to long penny stock gap ups, let me
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know below.
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For large cap stocks, if the stock gapped
up overnight due to positive news catalyst
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that will benefit the company earning in the
near future. Look to long the gap up on premarket
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high break, or long the consolidation after
the stock proves that it can hold the gap
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with the good news. If the stock gapped up
huge like $JMIA $10 points overnight not because
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of hype and not real catalyst , look to short
the stock and gap fill on the way down.
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Of course, always treat each set up not just
as charts or patterns, but make sure you consider
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the psychology behind the set up. Learning
day trading patterns can only get you so far,
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and not all gappers are created equal. Some
are longs and some are shorts. You should
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think about Who are the people in the stock
or looking to get into the stock, do they
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have more incentive to sell or buy more.
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I hope you guys enjoyed this gap up long and
short strategy. Leave me a comment down below
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if you have any questions or requests for
future videos. If this has helped you at all
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make sure to hit the like button for me and
subscribe. I would really appreciate it and
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it would show that people are actually finding
my free content helpful and would motivate
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me to make even more videos in the future.
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Iâve finally broke the 1000 subscribers
mark. Thank you guys all so much for following
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me along both on Youtube and Instagram. Watching
my videos and requesting for more. I promise
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you there will be so much more coming. We
are just getting started here. I'm the humbled
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trader, thank you so much for watching. And
i will see you next time.
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