![]() That creates yet another huge gap down on the daily chart. It seems like the company also took advantage of the pump to do offering or dilute their shares some more. This is a buying opportunity for potential profits.” Those buyers who bought into the PR drove the stock price up, but the bag holders from before see this finally as a time to cash out at breakeven or at a smaller loss.įinally, those people got to get out of the stock sell off near the gap fill price. Why did it go up? That’s because these are buyers who thought, “hey the stock was finally at a discount. One day, the stock released PR that drove the stock prices up to where the gap fill is. What's the story here? Ask yourself, “who is stuck in here?” Well, all the people who bought prior to a certain point were stuck holding the bag. If you zoomed into a smaller time frame on the daily, you’ll often see huge gap downs of that stock. You should be asking who is in pain, especially when it comes to these penny stock companies. The stock market is composed of buyers and sellers. They are not just candlestick patterns or charts of a stock, they are people, participants in the market. This is how I would recommend looking at stock charts by the way. All these people from the past few years have been underwater. How do you find these bagholders? They are people who have been holding the stock and have been invested since prior to the reverse split price. You might be wondering, “what are bag holders?” Bagholders are investors or buyers of a particular stock that’s been stuck in the stock for months or years and are unable to cash out because the stock they are holding has either just been losing money or diluting on their shareholders. ![]() These penny stock gap ups usually sell off, and they are some of my favorite short set ups. Now, a lot of penny stock chat rooms will be saying, “the head line has the keyword “license”, or “agreement”, so this is the stock we must buy for a breakout higher.” Well, that’s generally not the case at all. They released PR about a licensing deal in China in the early morning, and shares went up from close the night before to an 80% gap up in the next day premarket. That’s exactly what our example stock did. We’ve seen this before with stocks like Ocean Power Technologies($OPTT) and Aldeyra Therapeutics Inc.($ALDX). These sketchy companies do a reverse split, release some PR and drive the share prices up overnight. Let’s use a small cap penny stock gapper that is a reverse split penny stock. ![]() To start we will look at some small cap penny stock gappers. I’ll go over how you can identify a long or a short set up and how to create a technical trading plan around it. In this article, I’ll be going over how I analyze and trade gap ups on both penny stocks and large cap stocks. Not all gap ups are created equal, since some stocks will sell off on gap ups while others will run higher. While there are tons of YouTube videos and articles out there that teach you lessons on how to trade these gappers technically, I think it’s more important to understand the “WHY”, or the psychology behind these gap ups, especially if you are a beginner to day trading. What are gappers and how do you day trade these gap ups? We see stocks, either the small cap penny stocks or the large cap mid cap stocks gap up every single day due to PR news or earnings reports.
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