Those who study the underlying factors behind a gap and correctly identify its type can often trade with a high probability of success. However, there is always a chance the trade will go bad. You can avoid this first, by watching the real-time electronic communication network (ECN) and volume. This will give you an idea of where different open trades stand. If you see high-volume resistance preventing a gap from being filled, then double-check the premise of your trade and consider not trading it if you are not completely certain it is correct.
Second, be sure the rally is over. Irrational exuberance is not necessarily immediately corrected by the market. Sometimes stocks can rise for years at extremely high valuations and trade high on rumors, without a correction. Be sure to wait for declining and negative volume before taking a position. Last, always be sure to use a stop-loss when trading. It is best to place the stop-loss point below key support levels, or at a set percentage, such as -8%.
0 comments:
Post a Comment