How I Trade Gap Up - By Buying Calls.
I watch the five-minute charts and see how stock is trading. Usually it oscillates between open and high. I also watch buy and sell pressure to figure it out which side will likely win. Sometimes it is evident from the get-go who will win sometimes it is not clear till later stage. To enter long the ideal entry is when stock pulls back and comes closer to the open price but do not violate it. As soon as the stock comes close to open price and buying pressure starts building up that’s when we could go long with the stop either just below the open or below the support price which is below the open price. This is low risk high reward trade and decision has to be made quickly and trade executed at lightening speed. If the amount of gap is significantly high then the profit target could be just below the high made so far. Another entry for going long is when stock breaks the high made during the first 30 minutes. The stop in this case is below the open price of that day or the low made so far. If there is a support level below the open then the stop is below this support rather than below open. Usually the stock dips below the open to take out the stop and then it moves upward very fast. When I am buying calls then I buy only half lot and keep another lot to buy either at lower price (near open) or buy second lot when it breaks the high made (within 30 minutes) decisively and moves aggressively upward.