Statistics tell us that over 90% of gaps on a chart eventualy get closed (traded back through)
Those are some pretty good odds, when taking these trades we must remember that there was a reason the gap was created
in the first place IE: a gap down was more than likely created by a bad company announcement, bad profits or something as such.
So we must regard these trades as highly speculative and could turn in the opposite direction at any time. With that in mind,
there are some fantastic gains to be made from gap trades, the reason being is that gaps are usually an over reaction, investors
dont like to hear anything negative about the company they have money in, and when they do hear something bad, they want out
at all costs, thus driving the price down further than necessary. When calm has restored and the company proves that it is not all
that bad, investors can buy back in at a much lower level, which is what we have done here.
The image shows you the setup for the trade, entry was on 17th July and profit target will be at the top of the gap - $1.15.
This could take a while but we expect it to happen within 6 months. Almost 100% in 6 months aint too bad !
(if the trade is successful of course).
DISCLAIMER: These are my thoughts only and NOT advice as I am NOT a licensed advisor.
Please consult your stock broker for advice.
Update 6th August: As you can see here the stock has stepped up into the news gap and apears to be consolidating. It could
break out of the channel in either direction, but the most likely scenario is that it will break to the upside :o)
Update 7th August 2003: Today the price moved down to close on the bottom of the trading channel it has been wedged in.
If price trades out of the channel, we will exit the trade at 60c, which was our entry level, so the only loss incurred will be
Update 8th August 2003: Price traded out of the channel to the downside, so as planned, we exited at 60c. The price may
move back up, but we don't know that, the safest thing to do is exit while the price is moving against you, protect your capital,
and look for another opportunity.