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How to trade using Inside Gap Trading Strategy?

There are 2 types of inside gaps:
• Price gaps up in downtrend
• Price gaps down in uptrend
For our example in this episode, let’s take price gapping up in a downtrend.

Different parts of Inside Gap Trading Strategy

There are three major parts which forms this pattern.
1. Prior downtrend – The market should already be in an downtrend, price should have dropped big the previous day
2. Gap up– Price gaps up the next day well above the low and closing price of the previous day.
3. Pullback – this is the critical point of this strategy and has 2 outcomes.
a. If the stock gaps up and then sell off (which is pullback to the downside) and remains below the high of the day, it’s possible that the stock has reached its high of the day.
b. However, if a stock gaps up and pulls back to the downside, but then rallies to break above its opening price, the up move is probably not a trap and the stock should make new intraday highs – this is no trade zone for us

How to trade using Exhaustion Gap Trading Strategy?

This price action step up is usually designed to trap you into a potentially weak market and into a poor trade, catching stop-losses on the long side, and generally panicking traders to do the wrong thing.

Different parts of Exhaustion Gap Trading Strategy
The Exhaustion gap means a gap formation at the end of an uptrend. Consider a stock is in uptrend for a long time and it is in the end of an uptrend, price gap ups.
When do you mean by end of uptrend? Simple – Price gaps up into/near a supply zone. This kind of gap is called Exhaustion gap. This is a sign of weak market. This type of gaps are created to trap traders.

There are four major parts which forms this pattern.
1. Prior uptrend – The market was on uptrend for at least last 2-3 days. Market was already trending
2. Gap up near or into supply zone – Price gaps up the next day near a supply zone or into a supply zone.
3. Reversal candlestick pattern – Price struggles to move up after the gap up and continue to be range bound for a while. Price then forms Reversal candlestick pattern near the supply zone. This is the signal for price reversal to the downside.
4. Closing the gap – When prices close under the gap, it gives the confirmation of the exhaustion gap. An exhaustion gap occurs with extremely high volume.