Master Gap Trading Stocks In 30 Days With OOPS Trading Strategy

Every morning before the regular trading session begins, savvy investors scan their screens for stocks that show significant price differences between yesterday’s close and today’s open.

This is called gap trading stocks.

Stock gaps occur when market forces create a notable price disparity between trading sessions, presenting opportunities for quick profits through strategic entries.

The pre-market landscape is dynamic and this creates abundant trading opportunities for gap trading stocks strategies. Market gaps primarily materialize during pre-market hours, though they occasionally appear during regular sessions when dramatic price movements occur.

Trading gaps requires understanding key catalysts like:

• company announcements,
• industry developments,
• after hours earnings announcements,
• and broader market conditions

That influences the delicate balance of buying and selling pressure.

One proven method for capitalizing on these pre-market price movements is the OOPS trading strategy.

The OOPS pattern was first outlined in legendary trader Larry Williams’ book, How I Made One Million Dollars Trading Commodities. This gap trading system fades the direction of the opening gap, taking advantage of the tendency for stock prices to retrace their initial move.

Looking at AAPL’s historical data, for instance, we’ve seen 15 significant gaps in recent months, with an impressive 86.67% fill rate – demonstrating why gap trading stocks has become increasingly popular among day traders seeking consistent profits in the pre-market hours.

What is a Gap in Stock Trading?

In simple terms, a stock gap represents a sudden jump or drop in a stock’s price between market sessions, where no trades actually occurred during the price movement. These price jumps often happen when significant market-moving events take place outside regular trading hours, such as unexpected company announcements or major economic releases like earnings. 

Types of Gaps in Trading

Professional stock traders recognize four distinct categories of gaps that appear in stock charts: common gaps, breakaway gaps, runaway gaps, and exhaustion gaps.

• Common gaps: these are the most frequent and typically less significant price discontinuities. Basic gaps tend to fill within a short timeframe compared to other stock gap formations.
• Breakaway Gap: this happens when price action breaks decisively through previous trading patterns, particularly after a prolonged consolidation period. These formations can emerge from various chart patterns including pennants, channels, double bottoms or tops, inverse head and shoulders, or bull flag patterns. Breakaway gaps often attract attention because they frequently signal the beginning of a powerful price movement.
• Runaway Gap: A continuation gap, commonly observed in technical analysis, manifests when price movement skips several price levels, usually propelled by strong trading momentum and appears during an existing trend’s progression, suggesting further movement in that direction.
• Exhaustion Gap: these show up near a trend’s conclusion, hinting at a possible trend reversal. These price gaps formations might suggest that the current price movement is running out of steam, and market sentiment is shifting. Market participants often view exhaustion gaps as potential opportunities to close their positions, or as signals to initiate trades anticipating the upcoming trend reversal. 

How to Trade Gap Stocks 

When approaching gap trading in the stock market, traders can implement specific rules to develop profitable trading strategies. Although each stock gap pattern presents unique characteristics, we can analyze pre-market volume and price action to identify potentially profitable trading setups with favorable risk-reward ratios.

Pre-market trading strategies:

• A stock gapping up with unusually high volume in a bearish trend suggests potential short-selling opportunities as prices often retrace.
• A stock gapping up with strong pre-market momentum indicates a potential opportunity for day trading the long side.
• A stock gapping down during an established bullish trend often presents buying opportunities as prices tend to recover.
• A stock gapping down with weak pre-market support signals prime conditions for short-selling momentum trades.

Is gap trading profitable using just this knowledge alone?

Day trading to profit from stock gaps can be profitable but we need a more strategic approach that focuses on high-probability gap trading.

And… that’s where Larry Williams OOPS pattern comes into play.

See below…

Gap Trading Stocks Trading Strategy – Larry Williams OOPS Pattern 

Here is a funny fact about Larry Williams’ OOPS gap pattern:

The trading strategy is named “OOPS” because back in the days of pre-electronic trading when traders are stopped out of positions, the stock broker would often call and say, “Oops, we lost.”

The OOPS gap trading patterns are trading strategies that fades the direction of the opening gap. This stock trading strategy, first outlined by legendary trader Larry Williams, seeks to capitalize on the tendency for stock prices to overreact to overnight news and events.

When stocks open with a significant price gap, it often reflects the emotional fear and greed, knee-jerk reaction of the masses. However, as the trading day progresses, more seasoned participants may recognize that the initial move was overdone. This is when the OOPS setup emerges – traders start reassessing the true impact of the news, causing prices to reverse and move back in the opposite direction of the opening gap.

How to Profit from Stock Gaps with OOPS Buy Signal

The OOPS buy gap trading signals follow a specific three-step process:

1. The stock must be in a sustained downtrend for several sessions, exhibiting a series of red candles on the daily chart.
2. On the last day of the downtrend, the stock gaps down at the open, opening well below the previous day’s low.
3. Over the course of the day trading session, the stock rises above the previous day’s low and close price.

When these three conditions are met, the OOPS buy signal is triggered. Traders can then enter a long position with a stop-loss placed at the day’s low. The OOPS strategy works well because it capitalizes on the market’s tendency to overreact to news, allowing savvy traders to fade the initial move and profit from the subsequent retracement.

The psychological component is key to understanding the OOPS gap pattern. Bullish news or events can sometimes spur an overly exuberant gap up that lacks follow-through. Conversely, bearish news can lead to a panicked gap down that quickly reverses as traders realize the impact was overblown.

By identifying these market overreactions, OOPS gap trading stocks aim to position themselves on the right side of the rebound.