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"Gap and Crap" Trading Pattern? What Does It Mean? - YouTube

Channel: Timothy Sykes

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- Today I'm gonna talk about two terms

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I get asked a lot about,

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gap and craps and buy the rumor, sell the news.

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Take notes!

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(upbeat music)

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What's up, Tim Sykes, millionaire mentor and trader

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here answering your questions.

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I have two common patterns to teach you about today.

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They're a little counterintuitive,

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but if you understand why and how they work,

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then you can be prepared.

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Which too many, frankly, people are not prepared.

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90% of traders lose because they just think

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the stock market is simple.

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They're just buying good companies.

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Oh if the company has good news the stock should go up.

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Let me buy it, and wait for the good news

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and then the stock should go up.

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If it was that simple, 90% of traders would not lose, okay?

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70% of investors fail to beat

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the S&P 500 every single year.

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The S&P 500, just so you understand,

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is the 500 biggest companies in the US.

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It goes up a lousy 8% to 10% per year.

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So the vast majority of traders lose

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and the vast majority of investors

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can't even freaking make 10% per year.

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Why is this game so hard?

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It's because it's not an exact science.

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And I'm gonna give you two terms right now.

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One, gap and crap.

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Two, buy the rumor, sell the news.

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These two little things matter greatly.

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And you just have to be prepared ahead of time.

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That's why I'm making this video.

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So, what is the gap and crap?

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A gap in the chart is, if you look at stock charts,

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stock might be going up everyday or down a little everyday,

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and it creates a pattern.

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It creates an uptrend or a downtrend.

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But sometimes, there's good news overnight

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and there's a gap in the chart.

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Let's say the stock closes at $8,

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and then because the company announces good news,

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the stock gaps up to $10.

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There's a gap in the chart of $2 a share.

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Or there might be a gap down.

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What if a company has bad news?

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Stock is trading at $6, they had some really bad news,

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and it opens down at $4.

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There's a gap in the chart, that's a gap, gap down.

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Right now, with gap and craps, I want to talk about gap ups.

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When there's good news

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and everyone's all excited about the good news,

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but then the stock craps out.

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The stock might open up $2 a share,

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there's a gap in the chart,

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but then it comes right back down.

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Why is that?

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Why does the stock go down even when there's good news?

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Because sometimes good news is already priced in.

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Sometimes everyone's all excited about it,

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but people already knew about it.

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You know, like sometimes companies say,

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"Hey, we're gonna pre-announce really good earnings

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"on October 24th."

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And October 24th comes around, they have the good earnings,

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but they already pre-announced it,

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so people knew that it was coming.

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Or they might be debuting a new product with a big company

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coming out in a few days or weeks.

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They already know about it.

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Or, you know, weed might be legalized

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on a certain day in a certain country,

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everybody already knows about it.

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So buy the rumor, buy in anticipation of the good news.

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But, for me, I don't actually like being there

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when the good news is announced,

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because a lot of the run-up is oftentimes ahead of time.

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And so you get these gap and craps.

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This leads me to my next little phrase,

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buy the rumor, sell the news.

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If you know that there's an upcoming catalyst,

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if there's some upcoming news event,

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you can buy the stock in anticipation of it.

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Because a lot of people don't realize

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that when the good news is out, the stock can drop.

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I've seen companies, biotechs, that announce FDA approval,

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and the stock is down 20% or 30%.

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And I get messages:

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"Oh penny stocks are so crazy."

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"Stock market is so unpredictable."

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"There was good news and the stock is down."

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"Freak you, freak penny stocks."

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No, freak you and your lack of research.

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Freak you and your lack of understanding

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in how the game works.

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Maybe everybody already anticipated FDA approval.

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Companies talk, management talks, okay?

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I'm not saying it's like insider information,

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I'm just saying, there's expectations.

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A company might report good earnings,

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but maybe somebody had better expectations.

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A company might say,

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"Wow, we're making $2 a share in earnings."

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Maybe somebody expected $2.40 a share, okay?

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It's not as simple, it's not black and white.

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This isn't the casino where you put all your money on red

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and you double your money or lose all your money.

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There's different shades in between,

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and I would encourage you, encourage you,

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A, not to try to predict earnings.

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Because you might get good earnings

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and then on the conference call,

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the CEO might say something bad and the stock will drop.

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You might anticipate bad earnings

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and then the CEO might say something good

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on the conference call.

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You don't know what's gonna happen

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between companies reporting the news,

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how the company actually announces the news,

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and then people's reaction to the news.

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There's three variables, it's not just good or bad.

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And if you understand that there's multiple variables

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that are unpredictable, you just want to avoid that.

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For me, I like waiting to see the reaction first.

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If a company reports good earnings,

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well then the market should reward it.

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It shouldn't be a gap and crap,

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it should be a gap up,

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and then hopefully I'm gonna buy the stock

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when it breaks the day high, after the gap up.

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That tells me that the market loves the earnings,

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or loves the news, or whatever the news is,

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because it had a chance to sell off and it doesn't sell off.

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Or, buy the rumor and sell the news.

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So you buy the stock in anticipation of the good news.

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And then maybe a day or two days before the news

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is going to be announced, you get out,

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and you do nothing with it, and you take your profits,

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and then you watch all the schmucks

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who go down with the ship, and you wave at them.

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And you say, "you guys didn't study."

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"You don't deserve any money."

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&quot;Gap and Crap&quot; Trading Pattern? What Does It Mean? - YouTube

"Gap and Crap" Trading Pattern? What Does It Mean? - YouTube