Worst Gap Trading Mistakes and How to Fix Them?

Today, 10th September, 2015 Nifty has created a huge gap in the opening trading. Market started almost 84 points down in Nifty index. So its once again a gap trading day. These are the days when intraday traders do the worst gap trading mistakes.

Some gap trading mistakes:

  • You buy too early in a down gap.
  • You short sell too early in a upside gap.
  • You can’t decide target due to the sudden range expansion.
  • You can’t decide stop loss due to the sudden range expansion.
  • You then see that the market goes exactly against you.

Another problem in opening gaps are the overnight traders become confused if the market goes dead against of them. They either book loss and then finds the market once again comes back to their initial position.

So how to trade gaps in a volatile market?
The key to succsess is identifying correct trend direction, then enter in pullback in the direction of trend and then finally ensure quick profit booking to lock in gains.

We recommend ZERODHA as a broker for quick profit booking. One may check our ZERODHA CLUB page to avail special benefits for ZERODHA clients.
Nifty Chart 10092015
Gap trading rules
Rule No 1: Dont trade breakouts. A break our either side can be a fakeout and you can be caught on the wrong side of the market.

Rule No 2: Watch the breakout of first half an hour. The breakout of first half hour can set the mood of the day.

Rule No 3: If the breakout of the first half hour is on the upside never try to short the market till 1:00 PM. Rather try to buy in dips of RSI indicator. Sell in rallies of stochastics or RSI.

Rule No 4: If the breakout of the first half hour is on the downside never try to buy the market till 1:00 PM. Rather try to short in rallies of RSI indicator. Cover in dips of stochastics or RSI.

This till 1PM trading style is called lunch trick and works almost 80%-90% of times in gap days. Check the image above for more clarification. For any further queries I will encourage comments below the post.

We recommend ZERODHA as a broker for quick profit booking. One may check our ZERODHA CLUB page to avail special benefits for ZERODHA clients.

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Indrajit Mukherjee

Indrajit is a professional blogger and Trading System developer, Amibroker expert, WordPress expert, SEO expert and Stock market analyst. He is studying the stock market since 1995 and is an active trader since 2000. He started the journey of StockManiacs.net on 2008. He follows Indian and world markets as well as the forex market closely.

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