| | | | Cloud of Tariffs Coming for the Market?
First, don’t miss today’s Daily Chart Setup trade idea down lower in this newsletter.
With a cloud of tariffs going into effect this week are they going to put big down pressure on the markets? Is this just de ja vu from last week demonstrating how delicate this market really is?
Come join me as we dive in and see what’s moving!
Plus, as always, we have stocks popping and dropping so come find out what is moving this morning as I look for stocks and do some live premarket analysis on SPX, SPY, NDX, QQQ, Russell, IWM and other stocks that are potential plays for the day.
— — —
Why Gap-Downs Are More Important Than Gap-Ups: A Trader’s Perspective
One of the biggest mistakes traders make is misunderstanding how gaps work — especially the difference between gap-ups and gap-downs — and the market is facing a big gap down for the second Monday in a row.
I’ve seen it over and over, and once you understand the psychology behind these moves, you’ll be better equipped to avoid traps and capitalize on opportunities.
When a stock gaps down, it creates a psychological anchor for everyone who bought in at higher prices. Imagine you loaded up on shares of a company, feeling confident about its prospects, only to wake up and see the stock open significantly lower.
You’re trapped. Now, every time the stock rallies back toward that gap zone, your instinct is to sell just to break even. You’re not thinking about future gains — you just want out.
That’s why gap-downs act as resistance.
They create overhead supply, where trapped buyers are waiting to exit. This selling pressure can keep a stock from moving higher, even if the fundamentals look solid or the broader market is strong.
It’s pure psychology — and it’s incredibly reliable.
Now, compare that to a gap-up. When a stock gaps higher, no one is trapped. If anything, traders who missed out on the move are scrambling to get in, hoping for further upside.
Sure, some early buyers might take profits, but there’s no widespread pressure to sell like there is with a gap-down. That’s why gap-ups don’t create the same kind of resistance.
Here’s an example.
Let’s say a stock closes at $50, and the next day, it gaps down to $45. Everyone who bought at $50 is underwater. As the stock tries to climb back to $50, those buyers start unloading, creating a ceiling that’s hard to break through.
On the flip side, if that same stock gaps up to $55, there’s no group of sellers waiting to bail — the path higher is clearer.
I’ve applied this thinking across various sectors, from Technology (XLK) to Industrials (XLI), and it holds true. Whether it’s a giant like Apple (AAPL) or a smaller player in the Russell 2000 (IWM), the same psychological forces are at work.
So, next time you’re scanning charts, pay close attention to gap-downs. They’re more than just a temporary dip — they’re a signal of potential resistance. And if you see a stock struggling to fill a gap-down, that’s a red flag.
It might be time to look elsewhere or adjust your strategy.
In trading, understanding market psychology is just as important as reading technical patterns. Gap-downs tell you where the pain points are — and knowing where the pain is can give you a serious edge.
Now be sure to join me live at 9:15 a.m. ET for “Morning Monster,” my market-open livestream on YouTube!
| | | | |
|
|
ليست هناك تعليقات:
إرسال تعليق