Part of my morning routine includes going over the stocks gapping lower and those gapping higher. There are a number of services which provide this data. It usually plays a major role in my trading for the day. The stocks that are gapping are where the action is. Case in point. Today, UTHR, United Therapeutics Corp. gapped down at the open.

UTHR already had four bearish candlesticks with yesterday’s bar closing at the low. It was due for a bounce as it found an area of prior support. I decided to play it cautious and not buy the first sign of strength. In hindsight, that would have worked. One of my trading buddies did. Congrats TC! My entry was when the BL2 triggered on the 9th bar at 50.72. My stop was placed under the low with R = .52. As you can see, this stock provided two more entry points from there, as it broke out of mini-bases. I call this pattern a BL3, Bull Long 3, for my journaling. If you’re aggressive, you can add to your position on these mini-breaks. I know a trader that does this tactic quite frequently using scalp stops. The reason you buy a stock breaking out of a base, is because it should be going higher. If it starts to stall or fails, get out. I’m going to incorporate that philosophy into my trading more in the future, as the name of the game is keeping those losses small (ok, end of rant and back to this trade).

A 1/3 was sold at point A. The 2nd 1/3 at B. I thought the stock was stalling at it’s intraday 50 ma. After the stock broke the day high, it was off to the races. If you use a prior bar’s low as your stop-loss, it takes the emotion out of knowing when to exit the trade. The stock moved almost two points before that happened. You can also use a prior pivot as a stop-loss area. Actully, use the pivot stop-loss first, and when the stock gets extended, tighten your technique by using individual prior bar lows.

There are trading gems like this in the stock market a few times per week. If you’re not finding them, try making a watchlist of 10 - 15 gapping stocks in the morning and focus on those. Trading patterns will emerge.

One of my favorite day trading patterns presented itself on the gapping stocks list this morning. AVID, Avid Technology Inc. formed a BL1 at the open. After closing at it’s high, AVID gapped below its low of the day before. This trapped all the bulls, who now frantically want out of the stock.

As a trader, I need an entry. I decided to look for a BS2 on the 15-minute chart. This would give the stock a little more time to settle down after the open.

As you can see by the 15-minute chart. Avid never triggered the setup. Instead, the day trade was triggered using the 5-minute chart. R would have been equal to .36. Unfortunately, I didn’t take this trade. Hypothetically, this trading opportunity could have yielded up to a 4R reward just today.

This is frustrating. You can’t let these situations get to you though. There will be plenty more trading patterns to play. The stock market is open five days a week.

The last 2/3 of CLB was sold for 2R, and a nice day trade in ATI using a BL2 pattern on the daily, put some profits in the books. Tomorrow is another trading day.