Day trade on Gaps by SMM

--------------------------------------------Day trade on Gaps by DAN------------------------------------------------

1) AAPL gaps way down and perhaps trades a bit lower during the first few minutes of the open. (Listed stocks tend to open right at what turns out to be the low of the day, while Nasdaq stocks will grind around a bit more).

2) But ultimately, in a matter of minutes, the stock will move ABOVE the opening price. That's your first "safe" buying opportunity. (Some can buy the first minute or two of excessive selling (the proverbial falling knife). The reason it's "safe" is because the tentative "intraday low" has been established; and the fact that the stock is now trading ABOVE the opening print reveals that the buying has soaked up all the most aggressive selling and is still strong enough to push the stock higher in search of more supply.

3) Next, the stock will put in a more intermediate peak (we're talking intraday here...so "intermediate" is about 10-15 minutes.

4) Then you'll get a pullback. If the pullback ultimately stops at a higher level than the original opening rotation low (i.e., the tentative intraday low referenced above), then you have a good sense that the stock is strong and will be strong all morning. Once you see that higher low (i.e., there is identifiable support...it ain't a guess! You should see some buying that takes the stock higher -- a green, hollow candlestick), then you can add to that position. Your stop should be slightly below that new, intermediate low. That manages your risk. It enables you to be long with confidence because you know exactly how much is at risk. THIS IS IMPORTANT! IT WILL MAKE YOU MONEY! (I use all caps for emphasis...EXTREME emphasis).

5) At that point, you'll often see the stock move higher into lunch time....which is around 11 - 11:30. By then, the frenzied trading has run its course and the stock finds it's level. Volume subsides and the stock just trades sideways. Often it'll trade "sideways-to-down" as bulls gradually figure out that the stock isn't going higher right now, and they sell their positions. That selling makes the stock "heavy".

6) It'll typically trade sideways until the last hour or so. At that point, you have to watch the direction. The stock can start moving higher -- indicating that there are some big "buy" orders that are being completed (big trading desks execute big orders throughout the day). So those orders are being "cleaned up", and desks aren't trying to hide their demand. They just want to finish buying and so they start buying...taking the stock at the asking price rather than waiting for weakness.

7) That buying pushes the stock higher. But it does something more important. It also reveals which way the Street is leaning. It reveals that the stock is NOT under distribution. It reveals that there is long-term, big demand for the stock. It's right to hold that stock.

8) Conversely, if the stock does NOT start trading higher into the close and instead trades lower, then the opposite condition exists. Big "sell" orders are being executed and desks are just executing the remaining part of those orders. They are "banging the bid" and just selling at whatever price the market will bear. This type of action is bearish -- it reveals that the stock is under distribution, not accumulation. You don't want to own that stock because the odds are that you'll be able to buy it cheaper tomorrow or the next day.

9) When the stock trades according to the last paragraph (i.e., under distribution), the candlestick that is created on a daily chart is a "tombstone" doji -- a low open, a high intraday move, and a low close. It ain't a good thing.