Gapper - Examples

This stock showed up on my Gapper Scan when it was trading at 23.00. It was trading higher than the opening price of 22.63. When I use the Gapper Scan, I take a close look at the stock and its normal trading pattern. Bollinger Bands are a very useful tool to see any deviation from the normal price action. What I liked about this stock was the fact that the bands were close together. The stock has been trading in a channel between 18 and 26 for the last five weeks. If the stock was to breakout of the channel, it could very easily trade above the Upper Bollinger Band. Let’s see what happened next.

The stock breaks out through the Upper Bollinger Band and the channel on high volume. It closes at 26.94. The strong volume and the fact that the stock was just at the bottom of its trading channel two days ago give us a strong clue to future price movement. Please note, this stock showed up on the Usual Suspects, Power Trader, and Gapper scans on the day of its breakout.

Over the next two days, this stock trades up to 35.13. It is up 52% since it came up on my Gapper Scan. This is where you have to control GREED. The stock has made a big move in a short period of time. It would be wise to take profits. As you can see in the chart, the wise traders cashed in their profits, and the stock sold off. It closed at 29.50. This case study also shows the three-day methodology. The lucky ones found the stock on the first day of its move. The smart ones entered the stock on the second day of its move. The bag-holders bought the stock at 32-35 on the third day of the move and are now looking to break even, because the stock closed at 29.50.

This stock showed up on my Gapper Scan when it was trading at 13.50. It was trading higher than the opening price of 13.00. What I liked about this stock was the fact that the low price the stock traded at last week was the 26-month low. The stock has been trading down for a while. The up day prior to the gap open was on high relative volume. Volume increased today as the stock moved towards resistance at 14.50 (the Upper Bollinger Band), and 14.75 (the previous high). My only concern was the tremendous overhead supply at the higher price levels. Consequently, I knew that the volume would have to remain strong in order to have a strong sustainable rally. Let’s see what happened next.

Point A shows the day the stock showed up on my Gapper Scan. The bottom horizontal line shows the gap-opening price, which I like to use as a stop loss level. The stock took out the resistance level out on the next trading day and consolidated for two days (Point B). Then, the stock gapped up again on strong earnings report (Point C), and traded above the Upper Bollinger Band for three days. The top horizontal line shows the gap-opening price, which we use as a trailing stop for this trade, or an initial stop loss if you entered the trade at Point C. The stock then traded above its 20-day MA but lower than the Upper Bollinger Band for the next three weeks. The 20-day MA caught up to the stock at Point D, and the stock traded back up to the Upper Bollinger band at 35-37. This would have been a good place to exit the trade.

To summarize this case study, I found this stock at 13.50 by using the Gapper Scan. The stock went up to 37 (186%) over the following six weeks. The stock actually gapped-open twice and neither gap-opening prices were taken out. The pullback down to the 20-day MA was on low relative volume, and the bounce off the 20-day MA was on high relative volume. On the last day, the stock traded the highest volume over the last two days and closed below the opening price. This was a great signal to get out of the trade. 

This stock showed up on my Gapper Scan when it was trading at 46.75. It was trading higher than the opening price of 46.22. What I did not liked about the stock was the fact that the Bollinger Bands were extremely expanded. I did like the high volume and breakout though. However, I knew I could not expect the stock to go vertical without some consolidation.

The stock did move higher, but the low the stock made the day after the gap-open was taken out on the following trading day. This would have made staying in the trade extremely difficult. The following day the stock gaped up and sold off. The next two days, the stock made lower highs and lower lows. It would have been a violation of money management rules to stay in this trade. However, position traders, who would have used the gap-opening price as a stop loss level, may have stayed in the trade while most of us wouldn’t.

The enjoyed the same fortune of good news and gapped up again. The stock traded up over resistance. Although it showed up on my Gapper Scan again, I did not trade it. The reason I did not trade it was that I had an opinion rather than watching the tape and the chart. 

Indeed, the stock traded straight up on high volume like a moon rocket. The shorts were getting killed on this stock. The low float, large relative short interest, and positive news were the major contributing factors for the sharp upswing in price. 

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