How to play the Gap Down For A Short

Not long ago, we talked about one of our favorite setups, the Gap and Go. But did you know the exact same principles can be applied in the opposite direction? On March 30th, we played LULU for a Gap and Go, but in the short direction. When this stock came out with bad earnings, it got slammed in premarket trading causing it to gap down by more than twenty percent! This stock was immediately placed on the top of our watchlist for the best shorting opportunities of the day.

LULU Gap Down

Gap Down, LULU

Gap Down, LULU

When trading stocks you always need to be patient and disciplined, and the same rules apply when you’re entering for a short. Wait for the pop, don’t jump in right away. Once the stock opened, it popped to $53. But then it started to roll over and dip below the intraday chart’s 9EMA and the VWAP. Once the price broke underneath, it was the spot to short. A few students saw the setup and called it out at 52.30! If you missed that move you could’ve shorted it when it broke the lows of the opening range breakdown underneath the $51.75 level.

Later on, LULU had a few more setups for some strong gains. Throughout the morning it had trouble overtaking the VWAP and continued to show weakness. Eventually, the stock couldn’t take it anymore and by 10:45AM, all support levels were broken. It continued to fade the rest of the day all the way down to $50.50. Even after the initial move takes place, always keep a hot stock on your radar. You never know how much you can end up making!

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 today!



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