Thursday, May 18, 2017

FSLR trade - Gap FILL?

One of the traders had earlier asked me a question about the gap fill on FSLR trade today and if it is 30.32 or 32 or 32.5 and my take on it. We did go to and fro on this and here is my take on gap fills and approximations.

Few things I have seen with stocks is:
1- there are no absolute rules that it HAS to fill the gap. It can also fill in 55% of that gap and that is considered good too.

2- Most of the time it works with approximations like whole number because many traders like me take profit or hits stop loss at close to whole numbers. So it is always a region not a definite value. Many may not agree on this but it does work many times. There is no brick wall that the stock has to touch a point before it can go up/down. Hence approximations work

3. Just because this is one example that is being discussed does not mean that this is the RULE. It was for this example, tomorrow it may do something different like CASE 1 pointed out in the chart.
4. Stock price and liquidity has a lot to do with it too. $3 down is 10% down that is big so even if one gets anywhere between 3-7%, it should be good enough and trade-able.

5. Most of the times it works with support resistance better. Like 32.5 region is where the support likes and so is 33.5, it could have gone to 30.32 too.. but that is way far off and the daily pattern does not show that the stock on an average moves $3-$5.

6. 200 Day Moving Average is shown with a purple line. That also has significance and that may hold if stock is up or may hold if stock is low. It will test that point just because many traders believe in it.

7. Fibonacci series traders have a definite way of trading and that works too.

Taking all this into consideration, I would take profits at whole numbers most of the time and it has worked for me with my strategy. It may take many sessions for an actual gap fill. So day trading has a different meaning on it. Longer term or swing trades can say 30.32 for their eventual target, may work for that strategy. Again there is no brick wall that it has to bounce. Approximations always work.
As you can see different traders trade differently based upon chart intervals, type of trading - swing/day/long and hence no ONE trader gets their way. This is what makes stocks most interesting...

This works for my strategy, does not mean the other strategies and successful traders cannot have their way. As long as a trader can do it consistently, I think anything goes. Hope this helps.