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How To Trade A Gap And Go Setup

Gap & Go Setup's

One of my favorite setups to trade during trade earnings season!
When earnings season is in full swing, every trader has his / her favorite setup to trade. One such setup for me is the Gap & Go Setup.

Here's how I trade this Gap & Go setup during the earnings season:
  1.  Be aggressive & Buy as close to open price as possible
  2.  Place stop 3% below entry price
  3.  Sell some profits at target levels 
  4.  Ride more than half size position into the next day if stock closes at the highs
Pre-requisites for this setup to work:
  • Stock should be up 5% or more in pre / post market hours after earnings announcement.
  • Breakout from at least a month's range 
  • Should gap up to New all time highs
So, let's talk more about how I applied this setup to ROKU & profited about 20% gains in 7 trading days:
​

ROKU reported earnings on May 8th, 2019 after hours & there was a positive reaction to this news as it was up about 7%  post report. 
So I mapped out some levels in ROKU Daily chart & got ready to trade the Gap & Go setup the next morning.
Here was my plan before entering this trade:
-It was set to open near 70 
-Plan was to go long @ 70- 70.50 area with stop @ 68.30 (2.4% risk)
-Target's 75 , 77 ( Cup & Handle target 120)
-ROKU opened near 70 on the morning of May 9th. Placed a market order right after open & got filled @ 69.50 . Stop was set @ -67.40 (3% risk) . Tweet for reference
Picture
Picture
As you can see in the 5 minute chart above , ROKU wasted no time in breaking out of all resistance levels @ $74.35 & $77.57. It was soon in all time high territory 
I took profits over the next few days @ $73  78 , 83 & 87 for an average of 19.63% gains.
Picture
Now let's talk about how this gap & go setup would have worked for RH which reported earnings on Dec 4th,2019 After Hours:
RH was a leading stock in a leading sector trading near all time highs before it reported earnings on Dec 4th, 2019.

Here's how the chart looked Prior to Earnings:
Picture
As you can see in the chart above, RH was trading near all time highs of 208.33. 

This should be the plan to trade Gap & Go setup in RH:
It was set to open near 209.50
Plan should be to go long near 209.50-210.50 right at the open
Place stop @ 205 (2% below entry) 

Target's based on measured move -> 230, 240 & all time highs 

It reported decent earnings and was up about 2% near 209 before the market opened on Dec 5th, 2019. Be aggressive, place your market orders after open & get in.
Here's a 5 min chart of RH & how it took off right after open.
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As you can see above , it trended higher all day without any pull backs. Profits on half size position should have been taken at 230 & rest half should be carried over into next day.  This will assure at least 10% profit on this trade giving the trader more cushion to hold this for a longer period of time.
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Now take a look what RH the next day. It continues higher & hits second target of 240 resulting in 14% gains in just two days. Partial profits can be taken at this 240 level or traders can follow IBD's 8 week hold rule. 
Thanks for spending time on reading this post. Hope you gained little more insight on my Gap & Go Trading Strategy & why its my favorite setup to trade. See you in the streams.

TraderAmogh
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