What traders do…


Traders sell strength and buy weakness.  This includes for some the short of a gap — even when that gap is a jump out of congestion on volume.  We regard this as a species of Russian roulette.  There is in fact  a sometime prominent trader who advocates just that technique.  This can be effective for scalping — as we see in the present example.  Breakaway gap then price erosion and you could have made a profit.  Of course you run into a buzzsaw if a runaway gap follows the breakaway.  The tactic is too short term and nervous for us.  We have known technicians who waited for the pull back from the gap before initiating a position.

We regard  this formation as just such an example — gap, pull back, resumption of basic trend.

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