This is a advanced tactic but I want to share it and hopefully you can learn something and apply it to your own trading. The one thing to make sure before trading it is understanding the news behind the play and if it’s worth trading. This tactic can work on earnings gap up plays as well if looking for an aggressive entry.

So, what do you do if a stock gaps above your buy price?

First, we don’t chase and buy the first minute of the open. Many stocks can “gap and crap” and don’t end up recovering. The key thing is wait and see the first 15-30 minutes of price to hold up and not fill the gap. Once we get a clear morning low in place, we look for entry with the stop placed now at the low of the morning.

In BABA, the 30 minute low was $196.52. The 5 minute chart formed a nice wedge and broke out at $199 as the entry price. As price starts to rise, you can use the 9 EMA as your trailing stop. Once price breaks the 9 EMA you can sell half or 75% of your position. Now you can swing the remainder of the shares holding with the stop at today’s lows. If price continues to run up in the coming days you can trail or sell at a target level. If we get stopped out then loss is a scratch and we move on to the next trade.

I have posted a 5 minute chart of BABA. Follow the numbers to understand what I am talking about.

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