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This is a "trick" used by day traders and other short-term investors
to put a few dollars in their trading accounts, but you must be quick.
When a stock runs up late in the session and closes at its high of
the day, there is a great chance that the stock will gap up the next
morning. Why? In most cases the market maker for that stock has
probably created a short position for himself by selling more stock
than he actually had to sell. To replace it he will ratchet up the
price prior to the next day's open and gap it up when trading begins.
He knows that a big increase in price will usually attract a bunch of
sellers who want to take that profit.
In short order, however, the stock pulls back. The market maker is no
longer in a short position so he can "pull the stock back" to cover
that big gap and then allow normal buying and selling pressure to
determine where the price should be. No doubt about it, the market
makers are in charge and have the ability to adjust the stock to
almost any price they want.
Here is the trick: If you are able to watch the market during the
last 20 minutes, use your real-time tools to screen for a stock
running into the close. If you can find a stock running hard and it
looks like it will close at the high of the day, you can buy some
shares just before the final bell. The chances are over 70% that your
stock will gap up the next morning. A sour market might contain the
move, but a hot open could create an even greater gap.
Your plan is to sell the second the market opens and drop some easy
money into your account.
If you can't watch the market at the close, here is another trick:
Use daily charts to find stocks that ran up right to the close and
short them. You'll have to use a bar chart rather than a line chart.
You can pick out the winners on a bar chart because the little "arm"
that sticks out horizontally will be the closing price.
Since you are too late to get in on the gap up, you can try to short
the stock when its fades back. Almost 80% of the time the stock will
pull back to the closing price within the first hour of trading. If
you are quick you can go short right at the open and as the stock
sells off in the first half hour or so you can cover the short and
close your position. Often you can realize the entire gap amount.
Don't forget that these are very quick plays. The object is to
capture a quick point or so and get out.
Here's a warning: Never short a major news play. In that case, the
stock will probably open and fly! This is simply for momentum stocks
or sympathy stocks in a sector.
http://clix.to/wallmann
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