Don’t Chase Stocks Gapping Up!

Example of why swing traders should avoid chasing gap-up stocks.

When swing trading, it’s crucial to be aware of the potential pitfalls that can derail your strategy. One common mistake many swing traders make is chasing stocks gapping up significantly higher at the open. While it may be tempting to jump on board, hoping to catch a ride on the momentum train, this approach often leads to disappointment and lost profits.

That’s because more times than not, a stock, when it gaps higher, will ultimately fill their gap. Maybe not the same day but eventually they will. And why do stocks fill their gaps? A gap is a price range where no trading takes place, often occurring between the previous day’s close and the next day’s open. When a stock gaps up, it means that the opening price is significantly higher than the previous close. This can be due to various factors, such as positive earnings reports, favorable news, or industry-wide events.

The Street likes to fade the stocks gapping higher

However, the initial excitement that drives the price up can quickly fade as traders begin to take profits and reassess the stock’s true value. This profit-taking can lead to a rapid decline in price, causing the stock to “fill the gap” by returning to its previous trading range.

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As a swing trader, it’s essential to be aware of this phenomenon, and to not let it suck you by getting undisciplined in your trading and playing the gap. Instead, focus on identifying stocks with strong fundamentals and sustainable momentum. By sticking to your trading plan and avoiding the hype surrounding gap-up stocks, you can minimize your risk and maximize your potential for long-term success.

While it may be enticing to chase stocks that gap up, it’s crucial for swing traders to exercise caution and discipline. By understanding the dynamics of gap fills and focusing on high-quality setups, you can sidestep this common pitfall and improve your overall trading performance.

Tesla (TSLA) Gaps Up

Just today we had a perfect example of a massive gap upwith Tesla (TSLA) and I’ve gone ahead and done a video on it for you to enjoy as well. I also cover some other recent gap ups with Microsoft (MSFT), Alphabet (GOOGL) and Meta (META).

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