The “Gap and Go” trading pattern is a great sign of strength that usually makes a great swing trade if you know what to look for.
One of my favorite patterns to look for is the gap and go pattern. It’s called the gap and go pattern because that’s literally what price does. It gaps up…and then it goes higher.
Pretty straightforward, right?
Most of the time the gap and go pattern occurs after an earnings surprise or some other form of unexpected positive news that, to be honest, I pay little attention to.
In the morning the stock gaps up through prior resistance to a new high and trades higher during the day.
This is an increadible show of strength and is followed up by more strength as price continues to trade higher in the days to come.
Recently, Skechers USA $SKX printed a perfect gap and go pattern and I want to highlight that gap and go pattern here — because I think it’s a text book gap and go move worth studying.
First, lets take a look at a plan, non-annotated chart and see if we can spot the gap and go patterns.
Nice, isn’t it? A trend like this is a thing of beauty and everything I look for in a trade.
So, can you spot the gap and go patterns on this chart?
Here they are:
Two very nice gap and go patterns — and something you will see often in a strongly trending stock as shorts try and find the tops and get trapped higher and higher.
So let’s look at the first gap and go pattern and take a look at the specifics of the move.
Here’s Skechers USA $SKX on entry day —
The first thing you will see on the gap and go pattern is a gap higher through a prior old high resistance level.
As you can see, the $63-ish level is clear resistance on Skechers. But on this day, on heavy volume, $SKX blasts right through that level to print brand new highs.
If you were to enter this stock at the close of the trading day, or anywhere on this candle, you would place a stop just below the low of the candle.
That’s because, if price trades back into the breakout zone you would want to be out right away.
Once you you are in the position, the only thing that’s left to do is to let price run, and trail a stop as price moves higher.
How close or far to trail your stop is up to you.
I usually stair step a stop up under pullback lows, or by a measure of the stocks volatility — but more on that in another post.
For now, all you need to know that would you have taken this trade you would currently be sitting on a very nice gain.
Until next time, have fun hunting those gap and go patterns. They don’t always work out — but then again, nothing ever does.