Managing The Gap Trade

One of the trades that I like to do is the Fade The Gap trade which I've been writing about for weeks. Today the trade didn't work out so I'd like to take this opportunity to show you how I was able to break even on the trade and not lose money even though the trade failed.

This morning a few minutes after the open I shorted the Q's because of the gap up above the previous day's high. The Q's sold off but I didn't take it because I was looking for the NASDAQ to go negative which it never did. My golden rule for this trade is that after 10:00, if I'm not making money on the trade get out. So around 10:15 I lowered my stop to break even and I got stopped out.

So here is a wonderful example of a trade not working out, yet I didn't lose money. When this trade works I usually do very well. The only time I get my head taken off is when I short the Q's and the NASDAQ keeps going higher right from the open eventually hitting my stop which is about .50 higher depending on the current volatility. This only happens to me about .20% of the time. I usually make a profit about 50% of the time and break even on 30% of my trades. Overall it's a nice little short term trade.