Similar to gap up when there is panic in a stock and it opens lower than the previous day’s low we short (sell) the stock. The thinking behind this strategy is investors will panic and start to sell their holdings, to take advantage of the situation we use gap down strategy to earn some bucks.
The rules for the strategy are as follows :
- Short 2 highest gap down stocks.
- Divide the capital equally among the two stocks.
- Trade only those stocks which can be traded in futures and options.
- Short (sell) the stocks at 9:25 a.m.
- Keep 2% stop loss from your entry.
- Exit the position at 3:15 p.m.