Bear Market Strategy: Bottom Fishing on Gap Down - Example I

8 במרץ 2020

Now, when a big gap down occurs to any stock along with the index (which happened in last Friday because of Corona Virus), the first thing that mostly occurs is more fall because of margin expansion triggering selloff from brokers.

After some point though, as you can see from the above chart, We can trade the stock with help of bounce theory because people having shorts cover their shorts creating a short covering.

The initial gap works like resistance first.
But if broken, the next resistance is where the gap fills.

It happens because of the long unwinding created by mostly intraday traders thanks to our inbuilt herd mentality. Also, because of that same reason, patterns emerge!