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FAQs Frequently Asked Questions

Pocket Pivot Review / Buyable Gap Ups
When should I buy a stock that gaps higher? LITE, MHO, and RNG gapped higher then fell. (8-10-17)
As we have detailed in our books, leading stocks that gap higher out of constructive price/volume action leading up to the gap up have a greater chance of succeeding though this is not always the case. Some stocks can also qualify as bottom fishing buyable gap ups.

MHO does not qualify as either. RNG looks like a case of bulls vs bears battling it out with respect to the strength of its earnings report. Such matters can be difficult to assess, thus price/volume is always the final judge.

In the case of LITE, it is in the same group as AAOI which had gapped lower just a few days prior. Thus the quality of a gap is contextual as are all things when it comes to stocks. Further, on the day LITE gapped higher (8-9-17), the market looked weak given the escalated tensions with North Korea so a number of factors bode in favor of shorting LITE on the gap higher with a tight upside stop.

It pays to be very selective about which stock one chooses to buy when it gaps higher. And of course, one must gauge a number of factors such as market strength and the stock's technical and fundamental strength, among other variables, to know how much and when to buy on the gap up day. If a stock shoots higher from the open, risk may be beyond one's tolerance level, so in that case, one may choose to buy on any constructive weakness in the days ahead which would reduce risk. One can also use the 620 to fine-tune their entries and exits:

https://www.virtueofselfishinvesting.com/faqs/answer/the-6-20-moving-averages-and-macd

https://www.virtueofselfishinvesting.com/faqs/answer/please-elaborate-on-how-you-use-the-macd


First published: 10 Aug 2017
Last updated: 4 Oct 2017