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How to deal with a Gap Down

When you see a gap down in the pre-market, it can be very frustrating. Especially if you are holding long expecting it to continue. This can also be frustrating when you are shorting and the market gaps up. For now I want to talk about gap downs.

When the market gaps down in the pre-market it is because the futures are trading to the downside. The sellers are in control on the futures. SPY, DIA, QQQ have not started trading for the day, so they are not affected on the charts until the opening bell.  Remember that we believe there are only three ways anything can trade. Scenario 1,2, or 3. When the bell rings for the opening of the day at 9:30 AM what you will be looking for is the aggression of buyers and sellers. It does not mean start trading it means start watching. What we are looking for is a 2-2 reversal up. This tells us that the buyers are more aggressive than the sellers. We are looking for this on the 60 minute bar. On the 60 minute bar when the market opens you could see 2- 2 reversal to the downside. If you know The Strat and you are good at what you do this can be an opportunity to short the market. Again what we are looking for is the aggression of buyers and sellers at the open on 60 minute bar. If you are long and there is a gap down, you don’t have get out immediately. See if there is a 2-2 reversal up, if not, it’s time to take some profits. 

Keep your stops tight Soldiers. 

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