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Get Some Experience

Although the two techniques I have just described are very simple to understand and implement, they do require some experience. Before using them, I strongly suggest you monitor some markets closely, or get some price charts and mark the gap signals on the price charts so that you will see for yourself how they have developed and how accurate they've been. I reiterate that these two are among my favorite approachВэes for day trading and I expect they will serve you well, at times triggerВэing major intraday price swings and potentially very large profits.

Remember, however, that you can't trade a gap unless you trade a gap. Unfortunately, too many traders fail to enter their gap signals until well after the penetration has occurred, therefore missing many profitable opportunities.

If you are going to trade gaps, then by all means be organized, watch those markets when they open, find the gaps, and enter your orders. If you don't, then the method won't work for you.

What do gaps mean for the longer term? From the perspective of a day trader, this question is irrelevant. Unfortunately, too many traders think too much. The human mind not only seeks answers to questions but also attempts to extrapolate beyond the current data and beyond the rules hoping that relationships will be found which may allow us to predict the future. To be perfectly honest with you, this is anathema to the day trader.

The day trader must not think beyond today.

The day trader must not attempt to think about what may happen tomorrow as a result of what has happened today.

The gap lower, gap higher opening signals discussed in this chapter have nothing to do with the market's potential moves up or down tomorrow, the next day, or the next day. Therefore, I urge you not to be tempted to hold a gap position overnight no matter how well it has worked for you during the day. The day trader seeks to establish a day relationship and once the day is over the relationship is over as well.