Why Gaps Fill & Trade Management

During this discussion we talk about why gaps that happen over night in the stock market tend to fill. The though process on why stock gaps fill is that the imbalance of buyers and sellers in the premarket needs to be corrected. If the premarket players were wrong and the gap doesn’t see continuation, they will have to close their positions due to poor trade location further expediting the gap close. This is what is known as fading the gap, or a gap fill strategy.

The second portion of the video discusses the proper way to choose options strike prices, as well as how to manage a trade once you get in. When day trading options you need to be extremely disciplined when it comes to setting a stop loss and sticking with it. We talk about why this was a good short sided trade, where to place a logical stop loss and how to scale out to capture the bulk of the move with less risk.

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