How to Trade a Retest Gap in Real Life
How to Day Trade the Bearish Retest Gap in Real Life
Hey traders from around the world (and especially Shiila Chou who requested this article). How are you doing during this present moment of time?
I'm here to break down a pretty basic subject. Not too long ago, I wrote How to Day Trade the Bearish Gap and Go, which specifically focused on something I call the bearish gap and go trade.
In this article, I'm going to teach you how to trade the bearish retest gap. It's really quite simple and I know you'll enjoy it.
The information is going to be directed to those interested in day trading. Retest gaps are also great for swing trading, but you've got to wait a tad longer than you might wait on a day trade.
First: What do I look for? I am searching the pre-market for stocks gapping. I am looking for stocks gapping down 3-10% with an average volume of more than 1,000,000 shares.
Second: I determine if the stock appears to be opening below a daily support / demand price.
*I noticed years ago, that 90% of my trades happen after the first 30 minutes. Patience is one of the most crucial aspects of trader psychology. So I do my best to wait for the retest.
What does the retest look like?
This is where it gets fun. Feel free to use any moving average that suits you. I personally use the 10 exponential on the 5 minute time frame.
Here's a tip. Any moving average works on any time frame for this strategy. It just doesn't work all the time. If you lose less money than you make on this strategy, you'll be profitable! #math
Third: After the stock has gapped down and trades bullish a few minutes look to short off of the 10 EMA on the 5 min chart. WAIT for a candlestick reversal pattern. I really like the evening star pattern, or tweezer top.
Fourth: Set up the trade, make sure your reward is greater than your risk, and place the trade. If the trade works in your favor, after 30 minutes move the stop down to mitigate risk and exit at targets.
Above is an example of a trade very recently we were watching in class. A classic retest gap.
I've used this strategy for years. It works 50% of the time. But if you lose less than you make, well, you are profitable.
Thanks for reading! Feel free to enjoy this video: Top 6 Best Candlestick Patterns for day trading.