Day Trading Is Easier When the Market Gaps Down

January 20, 2016
Author: Peter Stolcers, Founder of OneOption

WATCH US MAKE MONEY BUYING STOCKS IN A MARKET DECLINE Posted 9:30 am ET - The market has been trying to establish support at SPY $187.50. We tested that level three times and this morning it will fail with ease. The selling pressure is steady and we are likely to challenge SPY $182. Not much has changed overnight. Weakness in China spilled over to Europe and now it is impacting our market. The economic data from China has been good, but traders don't believe it. I've been telling you to watch for a pattern. The key to getting long is that we need to rally above the first hour high. That has happened a number of times when the market dips on the open and I've had some great days trading the upside. Today is likely to be one of them. I focus on one specific pattern and strong stocks stick out like a sore thumb. They are coiled and ready to explode higher. On days when we get a big opening rally (like yesterday); I have to be much more cautious. The selling pressure is heavy and the market has not been able to rally above the first hour high on these days. Consequently, I have to hedge by shorting the S&P futures when we trade below the first hour low. I use that first hour low as my stop price. If the market continues to drift lower, my short S&P position will offset the losses I take when my stocks stop out. If the market rallies, I cover my S&P short and I let my stocks run. Often, the market stops going down and the stocks do not get stopped out. As soon as the market rests, the stocks rally and I am able to take profits. This strategy has worked well so far this year. I am consistently grinding out profits. When the market capitulates, I stand to make a lot of money. Last Thursday was a prime example. I will also have a nice watch list of strong stocks ready when the bounce gains traction. Earnings season should attract buyers. I am much more comfortable trading from the long side. Prices have fallen so far that I don't have any staying power on my shorts. I have been on the wrong side of a bear market rally and the scars are deep. Right when everything is falling apart and there's no hope in sight, the market shoots higher. Option implied volatilities tank and the losses are swift and huge. The only way I can short this market is on a nice rally that stalls. I love trading from the long side when the market gaps down. That's what we have today and I'm looking forward to it. If you want to see how we make money using this strategy, take the free trial and monitor our trades in the chat room. . . image

Daily Bulletin Continues...

Want Full Access?

Become a Member

Start Free Trial

No credit card required.


Previous Bulletin

January 19, 2016

Next Bulletin

January 21, 2016