Can see on my charts here. The strategy. I like to use on these gap gap down. Stocks is to wait this trading strategy works.

Really well in the fear market environment right now. However. You need to understand these two key factors in the current. Fearful market conditions right now with all the surprise.

Headlines. Popping up every other day. I'm sure we've all seen these kind of nasty overnight gap downs and overnight gap ups in this video. I'll be sharing a trading strategy that i've been personally using on these overnight.

Gaps. Whether it's an optimistic gap up to the moon or a nerdy gap down back down to earth. Which we all see way too often this year. So we gotta learn how to profit from this strategy with these overnight gap downs.

Many traders who are still new and inexperienced would simply say forget it i'd rather go work at mcdonald's instead. But the more experienced traders would be able to tell the difference between these stocks and still able to profit from other people's emotions in the market and they'll still hit up mcdonald's after the market closed anyways. These trading strategy videos do take me a long time to make so. If you enjoy this content and want to learn more please make sure to watch until the very end for my step by step tutorial on the strategy and don't forget to smash the like button.

I really appreciate it alright there are two key factors to this gap trading strategy. The first one is based on short term technical analysis. And that is whether we see a gap up or a gap down overnight. All right for those who are not familiar with this term.

An overnight gap refers to drastic increase or decrease of the stock's trading price during the pre market sessions compared to the previous day's closing price. Let's look at this example here dash door dash stock you can see in the previous day's closing price on this day. The stock closed around 75 dollars up here now the next morning overnight. You can see the stock gapped down all the way down to around 69 68.

Pre market. So that means. The stock has sold off gapping down. 10 overnight.

Generally speaking a technical gap down. Like this one is not enough to indicate whether the stock going to rally higher or going down lower. But in this specific case on dash stock. This is still a valid short strategy and we're going to explain why later on now that we understand what's a technical gap down.

It should be very easy to understand what a gap up is looking at the stock tdoc teledoc aka. One of the many bag holding positions. I mean disruptive investments at arc. Invest you can see in this example.

Tdoc. The previous day's closing price was over here around 38 dollars and 70 cents. Now the next morning. The stock had gapped up pre market to around forty dollars and forty cents.

That's almost a two dollar per share overnight gap up or a five percent gap as you can see this setup. Overnight is very different from our previous example of a gap down on dash stock so for tdoc this overnight gap up even though it's purely technical in the current market environment. This does set up for a night short for this gap trading strategy. So on this tdoc specifically.

I was looking at a 40 to 41 dollars area for short entries and looking forward to break down some pre market. Support and eventually to gap fill all the way down to prior. Days close where it came from at 3870. I personally messed up on this trade as you can see here on the chart.

I was right on a short thesis for this gap up strategy. However just off on the timing. And unfortunately. I couldn't hold on long enough to see the stock eventually break down.

But the strategy thesis was correct you can see i traded the same strategy on all these stocks in the past before such as d. Wack. Nvidia and amd now you must be wondering but shea. This is not what you said last year last year.

Many gap ups have broke out higher a good lungs and all the stones went to the moon well. It's now 2022 and the market is ever changing. The sentiment is much different now unless you want to end up working at mcdonald's stop buying breakouts nothing wrong with mcdonald's by the way. I still love the oreo mcflurries and fries yes at the same time and no i'm not sponsored by mcdonald's which is why i have to ask you to smash the like button.

And i promise you i'll share now pay attention. My fellow humble traders as well about to dive into the current market outlook and trader psychology. I think it's very crucial that we understand the why or the psychology behind these huge gap ups or gap downs. Especially.

If you're trading short term in a current market environment. Almost all the big moves this year are driven by one thing and one thing only fear the fear of oil prices spiking the fear of negative economic data and the fear of inflation and the list just goes on and on fear is a much stronger emotion than confidence or optimism. That's the reason. The bulls take the stairs and the bears take the windows.

There isn't a lot of confidence in the market. And that's why with a lot of breakouts and overnight gap ups you'll see stocks sell off more often than not i've been thinking of posting regular market updates on all my social media accounts so i can share my thoughts on the market with you guys so. Please comment market update down below. If you would like to see them let me know in the comment section below and make sure to refer to the description for my real social media accounts so earlier.

We talked about the first factor of this strategy. And it was the technical gap up or gap down the second factor to the strategy is whether there is negative or positive catalyst let me explain as i talked about in the recent trading recap videos. There are large cap stocks that make overnight moves with their own company catalyst. It could be earnings potential deal.

Going through or the newest drama involving elon musk for example gamestop stock gapped up and moved higher overnight. After announcing. They are doing a 4 1. Forward split or doordash in our earlier example gapped down because of negative news that amazon is making a move into their market and guess what no one dares to fight amazon especially after seeing jeff bezos bad ass outfit on the yat over here on the other hand.

There are stocks that do not have their own company's specific news for example. The teledoc overnight gap up. We saw earlier. It was gapping up to what we call air.

Basically. The company did not have strong catalyst to support this overnight gap up it's a contributing factor to the short thesis. On this gap trading strategy take a look at another example here uber as you can see here. The stock gapped down overnight due to the same catalyst as dash amazon takes a stake on grubhub and extends.

The food delivery service to their prime membership. This move from amazon will directly steal market shares from companies like uber and doordash who are operating in the same food delivery space. Therefore this uber stock reacted negatively with the gap down. Prior day's close was around 22 dollars and 30 cents pre market.

It sold off into about 21 dollars and 80 cents you can see on my chart here. The strategy. I like to use on these gap down stocks is to wait for the bounce in order to short into it with a better risk. Reward so on this uber.

Stock even though pre market is trading at 2180. I waited until the spike to test 22 dollars. And ideally. I was actually waiting for higher around 22 20s to short into it and my price target would be the pre market support around 2170s and the lows of the day around 2140s eventually probably to 21.

It's very important that you wait for the bounce for the right risk award to short into it don't be that person who short the stocks like these on weakness at pre market. Supports or lows of the day. Sure maybe that might work once a while but in the long run that's a very high risk entry. I will repeat don't short it at the bottom over here wait for the bounce and then write it down and collect your profits here are a few key takeaways to remember about this gap trading strategy especially on the short side the higher.

The overnight gap. Up is the more likely. It is to sell off the lower. The overnight gap down is the higher you should wait for the stock to bounce in order to short both of the above tips are all based on technical analysis.

However. Please do not forget about the third key takeaway. The fundamental catalyst because technicals tell you when to enter. But fundamentals.

Tell you the thesis and how hard to hit the stock this gap trading strategy. Which is talked about you will see this play out within the next couple of weeks. Now that earnings season is approaching so you best be prepared to trade all these overnight gap ups and gap downs. That we are about to see.

If you want to learn more about technical analysis or trading earnings make sure to check out this playlist to learn from my other free beginner beginner friendly and step by step day trading strategies and don't forget to hit the like button and subscribe to see more educational videos like these and of course. If you want to check out more of my day trading strategies. Especially risk management. Then make sure to check out the humble trader community down below.

Thank you guys so much for watching. As always i'm the humble trader and i'll see you guys next time you.