Hey, what’s up, guys? Well, Wednesday here and ending the day with one single trade on GM for just over 700 bucks, a really nice way to end a short morning of trading on a very simple gap fade setup.
I want to spend some time in the recap today talking a little bit about the technicals and the setup behind the gap fade trade, because it is one that I use all the time, virtually every day. It’s a setup that provides really great momentum when it does play out properly, so let’s take a few minutes and break down this morning’s grade on GM as well on the gap fade trade.
All right. Good afternoon, guys. Well, a one-trade type of day here this morning with GM. A really nice resolution on the gap fade and, again, it’s actually quite encouraging to see some momentum seen in several names here over the last handful of days, which is really nice. Trading’s been tough. There’s been a real big lack of resolution and continuation over the past several months, and we’ve been kind of seeing some consistency in the return of momentum in large caps, again, which is a really nice thing to see because it really does make trading so much easier.
When you have that momentum and you have that continuation, it really makes life a whole lot easier trying to hit these trades and get nice wins. You could see today, GM is a real solid winner here on one single trade, just over 700 bucks, so we’ll take it, start to see the momentum return. We’ll start to see these winners get a lot bigger, rather than grind along on small numbers. Again, don’t want to say that the tide’s shifting too early, but it appears that we are definitely starting to see some momentum return, which, again, will just lead to bigger and better profits.
So, nice day today, GM plus 728 bucks. Let’s break this down a little bit. Talk a little bit further about the setup itself and this gap fade trade. Now, I trade these a lot. These are very powerful setups, and when they set up properly, they provide really nice resolution and momentum-based trades. Because what happens is the sort of idea behind a gap fade is that you get a big gap, so people that are in the stock, they’re going to sell. They’re going to take their profit. When they see this gap up, they’re going to wait for the market to open. As soon as it opens, they’re going to hit that sell button, and there’s no one that wants to buy a falling knife here, so it makes it a real good candidate to short, that’s what we did today.
The plan today on this was to short below this 20-day moving average. This solid green line here is the daily 20 EMA. Now, typically on a gap fade trade, we would be shorting right out in the open as it’s starting to fail, but since we had so much support below it in the form of the five-minute 20, which is this green line here, the solid 20, which is the daily 20, and we had the [inaudible 00:03:13] there as well.
I didn’t want to short into a bunch of support. I wanted to wait and see if we got that 3,450 level to break, because if that actually got taken out, there was good potential for this thing to go all the way back to where it came from down here at 3,320. So looking at the five or the daily on this, you can see where these levels come from, in that we had this very strong pivot. A substantial pivot in through this 3,450 and you can see, I can even extend this out. It’s going to correlate with the tops and through all these levels over in through here as well.
Substantial pivot in through 3,450. Had a retest down here to the penny and then it started to ramp back up again. Came back down, has been testing it and get caught up in that zone the last several weeks. But today there was another interesting item here in that there was a point of Confluence. What’s a point of Confluence? Well, appointed Confluence is a zone where you have more than one point of support and resistance. And when you have more than one point of support and resistance, and in a very close proximity or zone, you definitely want to pay very close attention to that level, because typically this is where we see a move take place, or what’s known as an inflection point.
An inflection points is where you definitely want to trade as a day trader because that’s where they imbalances are in the market and things become the most predictable. If things become most predictable, then that’s where we have an edge as a trader to capitalize. Since we had this point of Confluence here today, I like the fact that if it broke that couldn’t hold that substantial pivot and it also couldn’t hold that 20 moving average, we’d see a nice move back towards 3,320. Looking at the five minute, we had that strong gap up. Very important items of a gap fade. You have lower highs coming into the open. So we had the perfect setup for a gap fade in that we had the highs up here.
We had the next high in through 3,530, right? Then the next high coming into the open just below that at 3,520. Perfect setup here for a gap fade. Again, hard gap higher, pullback, lower high, lower high, coming in to the open, crack. You can see what happened here faded really nicely and we’re able to get a trade. What I did on this, is, again I wanted to wait until we had a pivot put in below that substantial level or that Confluence point around 3,450.
What did I do? Well, I sat tight. We saw it faded out in the open. We were getting a little concerned that we missed a good portion of the move. But we all know that we can’t short into the support because that’s a recipe for disaster. What I did again, is I want to sit tight. Here’s are the levels again, here’s your solid green line, this your daily 20. What happened here is as we faded out of the gate, we busted through all the support, which is really good. We started to come back and retest, but we pushed back through it. I wasn’t short yet. We failed the five minute 20, which is right here, and we pulled back and then we held the pivot.
I wasn’t in yet. It didn’t like that and I wanted to see what the next attempt would do. If it resolved higher, like back above this last relative pivot right here, I wouldn’t have been in it. But what happened is we made a lower high again. Being that we had a lower high again, we started to fail that. I said all right, resistance is holding here. More often than not, if resistance is holding support is going to give away and vice versa, right? We had a lower high, weak stock. A lower high which was failing this last pivot. I got short at 3,460. All right, so I was going to add if we broke below 3,450. I added my position I covered a big portion as it came in through the low down here 3,420.
We bounced back up and again I was talking about how we want to see a pivot put in below the level. If that level holds and fails at 3,450, I’m going to add back again. What happened was I added back again in through here and I added back time position, the original piece I took off. As we started to fade again, I took it off again through lows. All right, covered more as we got towards 3,410. More as we cracked through 34, more 3,390. Then I sat tight with the balance because I wanted to see if we could get the rollover down to 3,320.
What happened as we continued, and something that you really want to pay close attention to, is if you’re in a stock with momentum, it should continue to make lower lows, right? Lower lows the whole entire way, what she was doing. But what happened here is as we got through 11:00am, we started to see a little bit of transition point in that we weren’t making lower lows anymore, right? We were kind of just sitting here and what was happening which was concerning to me is we started to make higher highs or [inaudible 00:08:09] higher lows, right? Higher low pivots, and we’re started to press against that five minute 20 moving average. I said if 34 breaks, I’m out.
All right, so 34 broke I got out of the trade. I gave back a little bit of money about 25 cents or so, if I covered down here the low. But that’s okay. I was risking a little bit to see if we could get all the way back down to 33, because that would have tacked on about another grand worth of profit and we didn’t get it. But that’s okay. I’m more than happy with the trade today. It worked out very well. But again this is the type of stuff you want to recognize as a trader. You got to be aware what’s going on. You have to have awareness and you just don’t want to sit in the trade until you get stopped. Have awareness understand when that stop is about to be hit. And how did I know it was about to turn around?
Well, we started to put in very short term higher lows here, right? The downtrend was violated in that we were putting in these higher lows, started to trend back higher a little bit. We weren’t continuing to make lows. Once I saw that I gave it towards the 20 moving average to see if it would reject since it was at the same spot as this 34 and I was still well on the profit on it. But we pulled back made another higher low. I said, “All right. Cut it loose, we’re moving into lunchtime here and we’ve got pretty much the meat of the move.”
That was the GM trade. Again, really nice move on it. A really well defined gap fade, well defined levels and that’s what makes a good trade. You have to have the substantial well defined levels in order to get a good trade.
Another example of a gap fade was SQ a few days ago. A couple days ago the stock was really moving around. But gap fade right here you can see coming into the open what happened was it is rejected those pre-market highs and it made a lower high coming into the open, which again is a telltale sign that this thing’s ready to crack.
Again, example of a gap fade, a setup of a gap fade, you make the move higher, the initial move higher. Here’s the high, right? Here’s the high up here somewhere around 9,830. The highlight candle, I need 30. Then you pull back which looks okay, starts to resolve back higher. But then this happens. Right before the open. The last five minutes before the open you put in this lower high right here at 920, which the high of that is 9,820.
Now, I know this is a very subtle difference and it may seem kind of silly that I’m playing with 10 cents on a stock that’s near $100. But these are the nuances that you have to recognize in order to understand that’s what makes these trades work, and that’s what gives me an edge as a trader, or you an edge as a trader is recognizing these very subtle things that happen because that’s what will end up making the big moves take place.
These subtles are important and they can’t be more so in order to develop an edge and when I saw this subtle hear that with a 10 cent difference just a very small low or high than we had this pole right before the open, it would just told me right away that this thing is going to do a gap fade because it couldn’t push through that last relative high.
Stocks that are strong make higher highs, they don’t make lower highs, all right. That’s something you just, it’s a very simple concept but not a lot of people really like to think about it that way. The more simple you can keep it the more easy it will be to understand. If you’re not making higher highs, you need to look the other way. It’s the same thing for a fade trade like the GM trade. If you’re not making lower lows, you need to be aware and potentially get out, all right.
SQ started coming to the open. You get to retest fail, you’re short somewhere around 98 massive move down to 94, huge profit day on that. Really nice move. Again the gap fade trade really important to understand, it happens all the time especially on stocks that make a big move because people want to get out. People want to take their profits, right? People just, they don’t want to stick around for a long time, so that’s a point in time where us as day traders can take advantage of that shift and really capitalized nicely, all right.
I’m sorry, that was SQ. Good example of a gap fade. GM nice trade today. Apple, we had this marked out this morning for a day trade but didn’t grab it. But what an incredible move, just a straight up push out of this setup here. Double top pushing through. We traded this wedge break here but just for a day trade and now it’s making this double top move and really rip it higher. Such a beautiful technical setup. I mean, this is the stuff that we like to see. This is trading, all right. This is not this choppy sideways, garbage. This is actual real momentum trading, which it’s really nice to see.
Look at BA. Look at our swing trade on BA, how much of a run this thing has had. We had this triple top that was put in, right? Right in through here. Broke through, the volume started to come in. We’re talking about this thing around 375 and look where it is today. 392 just a massive move out of a big technical setup. Really, really nice move. Again, that’s just to showcase there’s some definitely some momentum hanging around out there. It’d be nice to see it continue because this is the time of year we start to see pick back up again.
In any event guys, great day and we’re starting to close in on the tail end of the week here. Let’s try to keep it green and close strong. We’ll see everyone back here first thing tomorrow morning.
Oh, hey, I didn’t see you there. While I was just working on the dream board for my next home run trade, hopefully it comes soon. Until then make sure you subscribe to get email alerts anytime I go live or upload new videos. Until then, happy surfing.