10 Gap Trading Mistakes & Fixes — Step-by-Step Guide & Transcript

[00:02] expensive mistakes intraday traders make. And if you've ever chased a gap at the open, you've made at least one of these. Every example in this video is a real trade from real traders in names like AMD, Nvidia, SNDK, and a bunch of

[00:17] other names. Some of these mistakes look smart in the moment and then quietly drain your account for months. But here's the twist. The traders who fixed here's the twist. The traders who fixed these mistakes didn't trade more. They

[00:32] waited for better information. By the end of this video, you'll never look at gaps the same way again. So, let's start with the trader who needed to be first and paid for it almost every single morning.

[01:10] This is a chaser trap. The trader who needed to be first. There was this trader on our desk who was always always he wanted to be early. Not reckless, he

[01:22] just wanted to be early. He hated that feeling of watching a stock run without him, especially if it was an idea that he had. So when stock gapped up and then ripped right off the open, he felt like the clock was ticking. He could feel

[01:36] that urge to like get involved. He had to, right? It was his idea. It was already going. Every second that he waited felt like money slipping away right out of his hands. He'd hit the buy button right near the highs and tell

[01:49] himself he'd keep the risk really tight. He'd convince himself that what he was seeing in that up move was real momentum. Almost inevitably as soon as he would get in the stock, it would stall and then it would start to fade.

[02:01] He'd stop out. He'd reenter. He'd stop out again. What finally broke this big nasty pattern he was in? It wasn't a big loss. It was actually embarrassment. He loss. It was actually embarrassment. He realized he was reacting to movement,

[02:15] not strength. So now when he sees a stock gap up and sprint immediately, he stock gap up and sprint immediately, he slows himself down. He waits. He waits to see if price can rest without it falling apart. So every time it used to

[02:32] feel like urgency, now it just feels like a warning. Now he feels the urgency and it triggers a totally different set of emotions. Not one of action, but one of awareness. He's like a sniper. The target in sight

[02:48] does not mean to take the shot right away. It just means he has the target. Now it's time to look for the shot to be sure it's there before he takes it. So sure it's there before he takes it. So he focuses on the first pull in to see

[03:01] what happens there. He waits for the information. his eyes on the target. When he feels that urgency, it's some little piece of information telling him to be alert, but he waits for the information to give him the opportunity.

[03:14] And sometimes the opportunity comes in a different way than what he expected. So, in an example like we're looking at when it gets sold and then sold again, that urgency that used to just stop him out, frustrate him, really get him on his

[03:29] heels for the rest of the day, that's where he used to completely get run where he used to completely get run over. But now he can reset. He can wait and he can find when it gets and holds below a key support area. If this stock

[03:43] is going to reverse, that's a whole different trade with a whole different direct deposit from his trading account at the end of the month, they don't ask, "Did you make this money long chasing momentum or did you wait for that

[03:57] momentum to curl and then short it?" That's not the way it works. Traders make more by taking the clear trades for them. Number nine, the gap up into higher time frame resistance. This is one that drives traders crazy. It's the

[04:11] pain of not zooming out. And one trader on our desk, he once believed that the open told the whole story. So one morning a stock gapped up 5%. It looked completely unstoppable on the one minute chart. He bought the first pullback, but

[04:25] then he got instantly rejected. It was frustrating, right? Only after did he notice something almost embarrassing. The stock had opened directly into a daily resistance level that had rejected at a prior price for almost weeks. That

[04:40] loss, that only loss right there, he didn't have to make a bunch of mistakes, but that one allowed him to rewire his process. Now, every time he's looking at a stock that gaps up, it starts with one question. What problem does this gap run

[04:56] into? What we're talking about is a stock that opens up right into a really important resistance level. when he sees that gap pushing into a higher time frame supply area, an area that's been rejected previously, ideally multiple

[05:13] times, or gapping right into an area that was rejected significantly earlier. If you look back on the chart, he no longer expects continuation. He no longer expects that gap to be the catalyst that drives it forward. He

[05:28] catalyst that drives it forward. He expects, rightfully so, negotiation. and he's open to the idea that this could fail. What once felt like random rejection to him now sets up a predictable location trade. He's on the

[05:44] fence. Maybe he leans a little one way or the other depending on the catalyst. But he's not overleaning in either direction. He's not saying every gap up into resistance is going to fail, but he's also not saying that every single

[05:56] gap up into resistance is going to run from that level. He's giving himself the opportunity to take the trade that's being offered, not the trade that he initially expected. This trader prepares for both directions every time. He's

[06:12] looking for a gap into resistance, regardless of how good or bad the pre-market price action looks before the open. Number eight, this is often the

[06:24] case when stocks are downtrending in a low volume gap with no followthrough. A lot of traders have to learn that not all gaps matter. Certain traders used to

[06:36] assume that a gap meant interest. One trader in particular, he learned the hard way that some gaps are just kind of air pockets, right? Gaps in general are like price spikes on an intraday chart or on a higher time frame chart. It's

[06:49] just a spike, right? Have you ever seen a big price spike on a chart? Like a where the stock was trading before and it's like what the hell was that? The stock just spiked up but then almost instantly is right back. Gaps can be

[07:04] very similar. Gaps can just be price moving quickly in one direction. We almost always need more information to truly understand how other market players are viewing the gap to see if the gap is valid, especially if there is

[07:20] low pre-market volume on the gap. So, our trader remembered one trade clearly. It was a clean gap, a clean open, a clean entry, and absolutely no follow

[07:33] through. the stock got sold and it was sold more and the sellers were in control all the way through until the stock went down and found other support levels. The gap proved that it didn't matter. So that's when he started

[07:47] tracking who was actually participating. Now if a stock gaps but volume doesn't confirm on the gap, he'll step back. He'll use a really simple metric and it's a great one for everybody here to use. if it's not trading at least 3% of

[08:03] use. if it's not trading at least 3% of the average daily volume on the gap. If the stock gaps up and begins to sell off from the opening from like the 4 a.m. open, like a big gap up, doesn't trade enough volume or gaps up and then from

[08:18] 4:00 a.m. it's showing a little bit of a downtrend. Basically, it's been sold since the opportunity was created for traders to participate. especially if the news came overnight or the prior day. This is super important.

[08:30] The question he's asking is how do people act based on the gap? Not just is there a gap. He's using the pre-market action to determine A, is there enough participation? Has it traded more than 3% of the average daily volume? B, is

[08:45] there a clearly defined trend either uptrend or downtrend? The problem existed. When you don't have those two checks or both of those checks, this setup can turn into a death by a thousand cuts as the trader sees this

[08:59] gap up and then it pulls in. So, you got to buy, right? It's a possible support level on that pull, but then it lifts and immediately gets smashed down again. support level. Okay, now it's a better buy. You maybe even see some buying on

[09:13] those higher time frame sellers that were there early just continue to step down. So, you just use a simple rule. Don't fight the trend from a news catalyst regardless of the direction of the gap. If the trend is lower since the

[09:28] players playing the game have been able to get involved, then don't fight that gap initially. You can even lean and look and go with that price action

[09:40] against the gap. It's definitely a scalp trade if it's a positive catalyst, but as long as there's room to run down to the next key support level, meaning like this 160 area that we're looking at, and you can get a clear riskto-reward,

[09:54] there's a really valid trade to take with a stop at the opening price. An even better signal is when the pre-market low break occurs and then you

[10:06] get that first round of buyers trying to step in. That area where people used to just buy it and then they would get smashed. Once you see those buyers lose, that's a really good scalp short. And you can look for a specific 9 EMA or

[10:21] NEMA continuation short trade. You can even see a whole video on just that trade that we do in this link right here. Number seven, gap up into opening here. Number seven, gap up into opening drive into exhaustion fade. So the

[10:35] mistake traders make on this gap is mistaking speed for control. A trader once equated speed with strength, right? Price would go in that direction. That means it's strongly bid, right? No, not at all. When a stock would rip at the

[10:49] open, he would always assume the buyers were in control. But then it would come into the morning where the stock had exploded higher only to stall, hesitate, and then start to collapse. The tape had been fast, but it was

[11:04] really one-sided. Buyers were hitting offers, but no one was defending the price afterwards. They were taking the price higher, but there was no really clear buying underneath it. Once a trader took a bunch of rips on

[11:19] it, and I'm not joking. I mean, like it felt like he probably took 20 rips on this. Finally, he learned and the trade taught him something subtle. Real taught him something subtle. Real strength slows down before it continues.

[11:32] Fake strength just completely burns itself out. So now when he sees that opening drive and he doesn't see it base out, he sees it try and press higher, press higher, press higher, press higher, and it can't, he prepares for

[11:44] higher, and it can't, he prepares for exhaustion, not continuation. So you can look for the same idea of you see it running up and it's like almost like the buyers can do everything right but they can't get rewarded with continuation.

[11:59] That's a really clear signal where you can look for exhaustion. actually behind them. They're just chasing and pushing and pushing. But what happens when that flips? There's like an air pocket there, right? Those

[12:14] going to turn into sellers that are just going to walk the price back down. Number six, this is where a line becomes a verdict, right? This trader just

[12:26] didn't respect how important the volume weighted average price or VWOP is early on in his trading career. To him, it was just another line, right? Then he'd watch a breakout fail, reclaim VWOP briefly, and then get slammed. In those

[12:41] moments, that's where rejection turns into a waterfall. And over time, you realize VWAP wasn't magic. It was actually just the consensus of where bigger players were buying or selling. Above it, the buyers are in control of

[12:54] the value of the stock. Think about it this way. If the average participant believes that the price above VWAP is the right price, then there are real buyers there. If it sustains above that, then those

[13:09] buyers believe that the volume weighted average price is not as accurate. But if they take it above and it can't lift and once VWOP flips, he has to stop hoping. He has to start

[13:24] listening. What used to be confusion is now clarity form because he can take a very clear, fashionably late trade. It's a combination of a couple things we talked about. It's just using the information from the open to set up a

[13:37] real trade. What used to be confusion is now clarity. Let's get into some really just be sitting in your seat and literally they'll fall into your lap. We built scalp radar around patterns like these because you can just be sitting

[13:52] then all of a sudden it's like, "Oh, I know this pattern. I can make a really good scalp trade here." It's almost like these opportunities fall into your lap every day. And the last five are exactly what we're looking for. So, let's start

[14:05] with number five, the high and tight flag. This is a classic pattern, right? This is where you learn that strength is quiet. And there's a trader on our desk who almost missed one of his best trades. He felt like he needed movement

[14:19] to feel confident. When the stock went up and then was just chopping around, he "Oh, this stock is dead." Right? If the stock wasn't moving, he kind of assumed nothing was happening. The tight ranges really made him feel restless. He'd see

[14:33] the price go up and then come down, go up and then come down. He'd stare at the And when he didn't, he'd just move on to the next name. But this morning, a stock right off the open. Then it kind of stalled, right? There wasn't

[14:48] It was just a narrow, almost boring range near the highs. He fell into this trap of saying, "Well, because it didn't go higher, it's got to go lower, right?" He watched for a few minutes, set some

[15:01] wrote it off. He said, "These things dead." He thought if it was strong, it'd already be moving. So, he left it a few minutes later, and not much more time minutes later, and not much more time later. It started to make a move higher.

[15:14] And it was like subtle at first, but it was distinct. The buyers were clear. They were sustained. And most importantly, they were relentless. Unfortunately, by the time this trader noticed it, it was already extended. He

[15:27] knew he couldn't chase it there. So, he just watched this whole trend move happen without him. That miss bothered him more than a loss would have. When he came back and reviewed this trade later, we were talking about it. He saw

[15:41] something he had completely ignored in real time. Every time the stock tried to pull back, it was shallow. The volume was drying up. Every attempt to push was drying up. Every attempt to push price lower failed in this situation.

[15:55] It wasn't that interest was gone. The buyers were there right from the open. The sellers kind of felt like, "Oh, we've got it now." And so it would look like the stock was going to fail, fail fail. But if you look at the bigger

[16:09] picture context, what was happening? This stock had a decent short interest. It was like the third or fourth or fifth or sixth day up. Everybody was thinking this stock is going to come back down. But the stock wasn't resting because it

[16:21] was weak. It was resting because it was strong. That realization, that key lesson that he's learning right now changed how he viewed that stillness or a little bit of that choppiness. Now, when he sees a high and tight flag

[16:37] with a stock sitting relatively close to the highs, refusing to give back ground, that's the key. The stock was refusing to give back ground. He doesn't get bored. He actually gets focused. He starts watching the tape more closely.

[16:52] He pays attention to what isn't happening because everybody else was so I'm looking for the short." Right? He learned the hard way that the quietest trades, the quietest strength often winds up speaking the loudest. And some

[17:08] of the best moves in the market don't initially announce themselves. They wait for the patience to catch back up. what we're seeing in this trade and if you watch the tape it's so distinct. You can actually see a big institutional player

[17:23] and our belief was was probably somebody doing a forced short cover like a margin call on a short where they're doing a buy in. So they're buying that trader in that's already short and the institution or the broker is saying we got to buy

[17:38] you in. Sorry. They're just buying the stock. You can see the sellers on the tape if you go back and watch it. But the buyers just don't care. And it's like in this move, it feels like we're not getting that explosive price action

[17:52] getting rewarded initially. It feels like so much work. But that's what happens when you have underlying strength. A lot of times it just builds and it builds and it builds and then you wait for that momentum. That's your

[18:06] exit. You have to be aware that the bigger picture context, it just can't break. Everybody's itching to get short, but use that as an opportunity to just watch the price action. Look for that buyer to start to step up and hold.

[18:21] Start to step up and hold. And by the time they get above that key intraday level, as long as that buyer remains there, you've got a great trade setting up regardless of the fact that it kind of feels, if you look at the chart, like

[18:33] it could fail at any time. If you watch the tape, they're just there. It's a key lesson in accepting the fact that when people say it might not happen on your time frame, you still need to see those buyers there. You still need to see that

[18:48] strength because there's a big difference between seeing that strength and that sustained buying and seeing attempts higher like we talked about earlier that just can't get rewarded. If

[19:01] buyer drop out, you're looking for that air pocket. If you see that attempt higher and that buyer stick and stay and say, "I get that you're selling, but I have more that I have to buy." You can look for that momentum to start to build

[19:16] and that chase to happen near the end of the move. Number four, the gap up and VWOP build. This can turn into a trending day. All right. The power of repeated defense is the key lesson here because there was a trader on our desk

[19:31] who hated I mean he hated missing trend days. Not because he didn't understand well. He could spot the catalyst. He knew the stock had the right technicals.

[19:43] He wanted it to trend. But the moment the bell would ring, something else almost took over in his mind. He was so afraid that FOMO was creeping in. He was so afraid of watching the trend day run without him that he started buying every

[19:56] without him that he started buying every single new high. One push higher, he's in small pullback, he would add another push higher. He'd chase again. His risk was tight because in his mind, this thing absolutely had to go. It was going

[20:09] to trend, right? And then it wouldn't. He'd get stopped out. He'd re-enter by chasing the highs. He'd get stopped again. By the time the stock actually started trending, he was already frustrated or sidelined or worse, he was

[20:22] like kind of pressing. What finally changed things for him wasn't a big win. And what can change things for you isn't necessarily a big win where you buy the highs and get instantly rewarded. It was something he noticed on a day that he

[20:34] lost. He would buy those highs and then have to puke because it would get down to VWAP. But every single pullback would stop at VWAP. Every single one. The sellers would push it lower and then price would hold. Then they'd lift it.

[20:49] Buyers like him would chase it to new highs and then they would get pushed highs and then they would get pushed back down. But the buyers would absorb again over and over. And that's when it clicked for him. This wasn't chop. This

[21:03] was defense. This was a group of participants that were respecting that participants that were respecting that VWAP. And if it held that VWOP, it could turn into that trend day later. So now when he sees a gap up holding VWOP

[21:15] repeatedly, he stops trying to predict the next fiveminute move. He stops hunting for continuation moves. He stops forcing entries and he starts thinking campaign instead of trade. What used to look like indecision where the stock

[21:31] would run up and then puke back out and then the buyers would come in, that puke out becomes the confirmation. And what used to trigger the FOMO turned into patience. And those trend days that he used to completely overtrade, they

[21:45] became some of his cleanest, calmst winners by simply allowing the stock and the participants involved to tell him how they were playing the game. He didn't have to buy the highs to catch a good trend day. He could use that

[22:00] good trend day. He could use that support over and over and over again or even that first touch of VWOP and the way it responded to it to tell him what's the probability that this is going to still close at the high of day

[22:12] or trend higher through the day. Number three, the failed flush that reclaims a key level. The failed flush that reclaims a key level. So this is where weakness creates strength. A trader that I know used to panic on flushes. Any red

[22:29] candle sort of meant danger until the day a stock flushed hard, snapped right back above VWOP with aggressive buying. The move higher afterwards was like

[22:41] relentless. He had just hit out. He realized that not all the weakness is bearish. Some weakness is actually designed just to clear the field. Now, flush and reclaim setups are among his favorites, especially when they occur

[22:55] into key areas because they tell him who survived the test. So, instead of buying his position looking for that highs, he's actually using that. That's where he wants his position from. He's only selectively going to buy if it pulls

[23:11] into a key support area. So, he's going to use those red candles on a good gap up to tell him, are the buyers still interested in this stock? He's going to keep moving his stop up as long as it holds those levels. He's going to trail

[23:25] his stop up much better than most people trail their stops. A lot of people trail their stops based on what they think or what their average price is. He's actually going to use the price action. Every time that's supported, he's going

[23:38] to find that next leg higher to put his stop. This gap up trading strategy is a phenomenal one. What you have to do is recognize when there's a little bit of range or volatility in a range that's matching a trend higher. You use those

[23:54] flush outs and then most importantly see that change on the tape or that buyer rebid and then look for almost a rush back to highs off of that because the buyers that just hit out are going to chase it right back in. So you can let

[24:09] chase it right back in. So you can let that tell you who's surviving the test. Number two, gap up trading strategy. And this is something we saw a lot of people make mistakes with. We talked about a similar one earlier, but this is a tight

[24:21] similar one earlier, but this is a tight consolidation with a key variable, consolidation with a key variable, volume compression. Now, all you need to do is look at the volume pattern or what the bars of the volume look like. All

[24:33] right? And you need to learn to respect the stillness because this one trader used to take trades because he was afraid of missing out. That's a really common thing on gaps. You're afraid of missing out. You

[24:45] see the gap and you're like, it has to go, right? But then he went back and studied his biggest winners. Almost all of them started the same way. Tight of them started the same way. Tight range, shrinking volume, rising tension.

[25:00] Now, when the when the market or the stock gets quiet, he gets interested, especially if it's holding that opening range. He learned that the volatility doesn't disappear in this situation. It actually

[25:13] stores itself. And when you see that volume contract regardless of what price is doing and then start to expand again, especially when it's set up for that opening range break trade, that's where

[25:29] the volatility is going to work in his favor to the upside. So, he's going to let that price action move around as the volume's not there. And when that volume volume's not there. And when that volume starts to sustain, again, simple rule of

[25:42] thumb, 50% increase in the size of the volume bars as it starts to go. That's up in all that. He's not going to get caught in that FOMO. He's not going to

[25:54] get beaten up as the stock isn't trading any volume. He's going to let it slowly build because that volatility that he was hoping for, that upside volatility was hoping for, that upside volatility was just storing itself. Number one, my

[26:09] absolute favorite one. Gap up with absorption at the highs. This is the trade that changed everything for a trader. This was the trade that finally made sense of tape reading for the trader. He watched the stock at the

[26:24] highs while massive sell orders hit the tape. We talked about it earlier, but this is a little different because massive sell orders, I mean just as much as they possibly could sell, hit the tape, but the stock didn't move. At

[26:40] first, he thought these sellers mean it's weak, right? But then the stock broke higher and it never looked back. That was the moment that he understood absorption. People talk about iceberg orders, you know, like you can see a

[26:53] size underneath. Most people are looking at the buyers and hoping that it's iceberg orders. The key is look at the sellers. And if they're real size sellers, but there's absorption underneath, meaning the price isn't

[27:06] going away, that's a clue that you have an iceberg showing up on the tape. They're not showing up on the time and sales is like massive size, but they're there. So now when he sees that heavy selling that

[27:22] fails to push price lower, he knows something important is happening beneath the surface. This trade didn't just make him money, it gave him conviction. Trades like this where you can recognize something specific and we've given you

[27:37] something specific and we've given you 10 specific things to look for are opportunities for you when you're trading gaps. And here's the truth most trading gaps. And here's the truth most traders will never learn. Your P&L isn't

[27:49] defined by how aggressive you are. It's defined by how specific and how selective you become. Every trader we talked about in this video didn't get better by learning more setups. They get better by recognizing the information,

[28:05] the specific information that we talked about in each of these 10. They learned when urgency was actually a warning, when stillness was strength, when selling pressure wasn't weakness, and when the market was quietly telling them

[28:19] when the market was quietly telling them exactly what not to do. If this video helped you see the market more clearly, then do these three things right now. Like the video because it tells YouTube this is worth showing to serious

[28:32] this is worth showing to serious traders. Subscribe because we break down real trades like this every single week. And we do it with as many live examples and as much specificity as we possibly can. And go ahead and comment below

[28:47] which of these mistakes have you made the most? Because the traders who grow fastest aren't the ones who hide their mistakes. They're the ones who learn from them and recognize them early. I'll see you in

[29:01] recognize them early. I'll see you in the next trade.