Trading strategies based on GEPe. Part 1

Trading on GEPe - a simple and disciplined approach to buying and selling shares. In fact, everyone can find stocks that have a price from the previous closing of GEO and watch the first hour of bidding to determine the trading range. Increase above this range signals to buy and padanie below it signals to sell.

What is the GEO (Gap) GEO - the change of prices between the closing and opening of two consecutive days. While most guides to technical analysis identifies four types of models GEPa as usual, the breakaway, continuation and exhaustion, these designations are applicable, after a sample schedule. That is the difference between all types of GEPa apparent only after the event continues to grow, or decline certain way. Although these classifications are useful for long-term understanding of how a certain action or sector to respond, they provide little useful for trading.

For trading purposes, we define four basic types GEPov follows:

Full GEO up occurs when the opening price is higher than yesterday's maximum.
The graph below for "Cisco", the opening price on June 2, showed a small dash on the left of the second bar in June (green arrow) is higher than the closing of the previous day, showed a small dash on the right side of the bar on June 1.

Full GEO down occurs when the opening price below yesterday's level.
The schedule for "Lycos" below shows the complete GEO-up 16 May (green arrow) and the complete GEO-down the next day (red arrow).

partial GEO-up occurs when today's opening price is higher than yesterday's close, but not higher than yesterday's peak.
The next schedule for "Earthlink" represents partial GEO-up June 1 (red arrow) and the complete GEO-up on 2 June (green arrow).

Partial GEO-down occurs when the opening price below yesterday's closing, but not lower than yesterday's minimum.
The red arrow on the graph for "Offshore Logistics" below shows where the event was opened below the previous closing, but not below the previous minimum.

Why use trade rules?
In order to successfully trade in the shares of GEPom must use a clear set of rules of entry and exit for the trade and minimize risk. In addition, the trading strategy based on GEPah can be applied to the weekly, daily or intraday GEPam. For long-term investors, it is important to understand the mechanism GEPov because the signals are for sale can be used as a signal output, to sell existing shares.

Trading strategies based on GEPe
Each of the four types has GEPa signals for buying and selling, with eight trading strategies at GEPe. The basic principle of trade on GEPe be allowed after one hour after the opening of the market set the price range of shares. Modified Trading Method, which will be discussed later, can be used with any of the eight primary strategies to trade up to the first hour, although it carries a greater risk. Once the position is open, you calculate and set the 8% slide stop - an order to exit the long position (buying) and 4% rolling stop - an order for a short position (selling). Sliding stop - the warrant was merely a threshold of entry, which follows the rising costs or falling prices in the case of short positions.
Example for purchase: you buy a stock for $ 100. Vyustanavlivaete yield no more than 8% below that level, or $ 92. If the price rises to $ 120, you raise the stop - the order of 11 $ 0.375, which is approximately 8% below $ 120. Stop - the order continues to rise until the rate of stock increases. In this case, you follow the appreciation of the shares, or with real or with mental stop - Warrant, which will be when the price trend finally changed.
Example for sale: You sell stock for $ 100. You install a warrant for the purchase of $ 104, so that a return of 4% would have forced you to get out of position. If the price falls to $ 90, you re-calculates the stop - the order of 4% above that mark, or $ 93 for buying to close the position.

The eight primary strategies are

Full up GEO: Buy
If the stock price at the opening of more than yesterday's high, look at 1-minute schedule after 10:30 and then a warrant for the purchase of two tikami above the maximum achieved in the first hour of bidding. (Note: The "tick" is defined as the difference between the purchase and sale (spread), usually from 1 / 8 to 1 / 4 point, depending on stock)

Full up GEO: Sale
If a GEO in the price of shares up, but do not have enough momentum to sustain growth rate of shares level off or fall below the opening price with GEPom. Traders can set similar to a warrant for the sale as follows:
If the opening stock price more than yesterday's high, look at the 1-minute schedule after 10:30 and then a warrant for the sale of two tikami below the minimum achieved in the first hour of bidding.

Full GEO Down: Buy
Low incomes, bad news, organizational changes and market forces can make the stock price decline is not typical. Full GEO down occurs when the opening price is not only below the previous closing day, but also to minimize the previous day. The action, the cost of which opens with a full GEPom down, then starts to climb immediately, is called the "Leap dead cat."
If the price of shares is less than yesterday's opening level, set the order for the purchase of two tikami above yesterday's level.

Full GEO Down: Sales
If the opening stock price is less than yesterday's level, look at 1-minute schedule after 10:30 and then a warrant for the sale of two tikami below the minimum achieved in the first hour of bidding.

Partial GEPy
The difference between full and partial GEPami is the risk and potential profits. Generally, the action opened with GEPom completely above the previous peak of the day is a significant change in the market to buy or sell it. The demand is large enough to induce marketmeykerov or brokers to make a significant change in room prices to accommodate the outstanding orders. Shares with full GEPom generally have a greater tendency to move in one direction than stocks with partial GEPom. However, less demand may only require that the traders on the floor moved a price above or below the previous closing to ensure that the purchase or sale of warrants. Generally there is a significant opportunity for profit in a few days in the shares with full GEPom.
If there is a lack of interest in the sale or purchase of shares as soon as the initial order, the action quickly returned to its trading range. Entrance to the trade in shares with a partial GEPom in the general case requires a greater emphasis on, or closer to stop moving - orders about 5-6%.

Partial GEO-up: Buying
If the opening stock price of more than yesterday's close, but less than yesterday's peak, the situation is considered a partial GEPom up. The process to enter the long position is the same as for complete GEPov in which the visible 1-minute schedule after 10:30, and placed an order for the purchase of two tikami higher maximum achieved in the first hour of bidding.

Partial GEO-up: Sale
The process of trade in the short position in partial GEPe up the same as for Full GEPov in which the visible 1-minute schedule after 10:30 and placed an order for sale on two teak below the minimum achieved in the first hour of bidding.

Partial GEO Down: Buy
If the opening stock price is less than yesterday's closing-opening, 1-minute look at the schedule after 10:30 and then a warrant for the purchase of two teak above the maximum achieved in the first hour of bidding.

Partial GEO Down: Sales
The process of trade in the short position in partial GEPe down the same as for the full GEPa down, where the visible 1-minute schedule after 10:30 and placed an order for sale on two teak below the minimum achieved in the first hour of bidding.
If the claim amount is not met, then the safest way to play the part GEPe is to wait until the price has not overcome the previous maximum (as a long trade) or minimum (when the short sale).

Scott McCormick
www.stockcharts.com