How To Play The Gap Up Fade

How many times have you woken up early, scanned the market and found the perfect gapper? The stock reports of strong earnings and a gaps 4% above significant resistance levels. But as soon the market opens it tanks lower and lower without looking back. You probably know this by now, but this type of head-fake happens all the time. Instead of getting caught like a deer in headlights, why not learn how to play the Gap Up Fade.

TSRO Gap Up Fade

On March 28th, TSRO gapped up more than 6% in premarket trading. The move comes from news that the FDA approved its latest ovarian cancer drug. Although seemingly great news, the stock dropped as soon as the market opened and continued to fade the entire day. What’s happening is that all the traders who got in before the FDA’s announcement now see a nice profit. Now, they’re scrambling to sell their position and lock in profit. Amidst the strong selling pressure, short sellers jump in and push the price down lower. On the other hands, bullish traders see a falling knife in the price action and merely wait on the sideline for the selling to subside.

Gap Up Fade, TSRO

Gap Up Fade, TSRO

As day traders, we need to look for opportunities on all ranges of the spectrum. All it takes is for us to listen to the price action. As soon as TSRO opened, it developed a clean bearish Opening Range setup with support at the $160.00 level. Once the stock starting to break under and push lower, this was a great spot to enter for a short. As it continues to break lower, close some of your position before exiting completely when the trend is broken. Beneath $155.00, another bear flag setup developed allowing for a great secondary play. Eventually TSRO rode all the way down to $149.44 with only minor bounces along the way.

If you get rid of your emotional bias and your assumption of what you think is supposed to happen, you allow yourself to be more open to listen to what the tape is telling you. Don’t fight the tape and instead just ride the trend. If you’re not sure of the setups and price patterns that we’re talking about you can learn them all here at our Bulls Bootcamp. It’s an intensive 60 day course to teach you exactly how I trade and why. To learn more or signup, email me at today!



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