Classical Gap Setup - Intraday Trades
Classical Gap Setup - Intraday Trades
Tools – Candlestick/Bar Chart (Hourly Time Frame), Comparative Relative Strength (Base Index: Nifty)
Brief Introduction – Now, Let’s take time over understanding this. Markets are based on demand and supply. Gap down, as shown in one of the images below indicates that today the market opened lower. Hence, the bidding today started much lower than yesterday’s lows. This means traders are expecting the market to go down and hence are not even bidding near the levels of yesterday. This is classical sign of bearishness. Same goes for upward gap.
Concept of Relative Strength - First of all,
do not confuse this with Relative Strength Index (RSI). RSI is completely different. Comparative Relative strength is when a stock is compared with a base entity (let’s say an index; Nifty). By using Comparative Relative Strength we compare whether the stock is outperforming NIFTY or underperforming NIFTY. We will always want to buy stocks which are outperforming the index and will always want to short stocks which underperform NIFTY.
Trade Setup - This is one of the few setups which gives consistent returns in intraday. We enter a
BUY position when there is an upward gap on Hourly time frame and the gap is sustained for one hour with the Comparative Relative strength sloping/pointing up. We enter a SHORT position when there is downward gap on Hourly time frame and the gap is sustained for one hour with Comparative Relative strength indicator sloping/pointing down.
Time and Validity - I trade this pattern only on Hourly charts. Out of 10, I must say 6 of the gap patterns are successful. If you get a gap up in a stock that has reversed or formed a base, then the pattern seems to work more efficiently. If you apply the same structure on daily charts, results can be even better.
Stoploss and Target - I have explained the stop loss in the charts. Targets may vary depending on the range of the stock.
Examples - I have given 2 very recent examples. One for Buy setp and one for short setup. Please refer below.
Note - Intraday trades are for very experienced traders. Please master some setup and paper trade it before putting real money.