Wednesday, April 20, 2011

Consolidation after gap

A narrow horizontal day after a huge gap up is usually a consolidation day. This is when the overnight traders take profit and the ones who missed out on the big move enter. Usually this leads to a large move in either direction in a day or two.

If the next day gaps down, this could lead to a large move down and in principle is similar to island reversals on daily charts.

A day like this is traded like a normal trading range day and if you traded any two legged move, you probably did well.

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