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Bad Gap Trade

This is a picture perfect example of how not to do a gap trade.  The vertical line on the chart indicates the 5 minute bar just prior to the market opening.  What you don’t see is that the market is open with a +6 point gap.  Although most gaps close, and this one eventually did, this was not the best opportunity speculate for a gap close.  You’ll see that it essentially is just pulling back to the 8 EMA.  This is NOT a good short!  My favorite gap trade is when the 9:25 – 9:30 bar is in the opposite direction of the gap.  This is not the case here either.  It is not necessary to have an opposite direction bar, however you do not want to short into support.

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