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Large Gap Ups Make Scalping Less Plentiful



October 21, 2011 – Comments (0) | RELATED TICKERS: SPY , DIA , IWM

Scalp trading or day trading is when a trader looks to catch small moves in the stock market within a single trading day. Day traders will usually hold a stock for a few seconds to a few hours within a trading session. This type of trading style is not for everyone, however, it does have its benefits as most scalp traders will not have the risk of holding a stock overnight. Scalp trading or day trading is a very calculated method of trading requiring a good level of expertise in chart reading.

Often, when the major stock indexes gap sharply higher at the open it will make for less active scalping day. The problem with large gap ups in the major stock indexes is that the stock market has spent a lot of energy before the opening bell. Therefore, the major stock indexes will usually need to consolidate for a long period of time before resuming the trend. Think of it this way, if a runner races up a steep hill or mountain the runner will simply exhaust himself and need to take a breather before running further. Stocks are just like people, in fact, stocks are traded by people so that proves the similarity already.

This morning, the S&P 500 Index e-mini futures (ES Z1) have gapped higher by 17.0 points at the open. When this happens it tells us that most every stock will trade with the major stock indexes. Therefore, if you can find a favorite stock it will usually move higher when the major stock indexes make a move to the upside. Scalp traders must be very selective and remember not to chase a market that is already trading to the moon. It is always better to scalp trade in active markets. Traders should remember that there are always scalping opportunities each and everyday, however, they are likely to be less plentiful when there is a sharp gap higher open.

Nicholas Santiago

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