Fundamental or technical factors cause the Gap Fill Strategy, and they tend to return to normal as underlying conditions normalize.
Gaps also form as market sentiment changes overnight, like reaching new highs or lows.
The Gap Fill strategy is a technique traders use to buy stocks at a low price and sell them at a higher price.
A trader could purchase stock after waiting for it to drop in price significantly and then wait to sell it for a profit as the price increases to fill the Gap area.
In this post,
You will see an example below to understand Gap Fill trades and what to search for when you trade Over-The-Counter (OTC) stocks.
- I will provide you with a trading strategy other OTC traders commonly use
- You will learn what a Gap Fill trade is and how it works with an example
- Understand how you can apply this towards your trading for success
- Recognize this strategy is best for finding repeatable 10-40 percent gains. It is NOT intended to find 100-200 percent gains per trade
- This strategy rewards you for getting in early and being patient,
- It stops you from buying stocks that have already run up at their top before they crash and your holding bags
Gap Fill Stocks Strategy Example
The example below shows EEGI, an Over-The-Counter (OTC) penny stock.
The illustration shows,
- Gap Up
- Gap Fill Area
- Buy Zone
- Sell Zone
- Potential Profit (52%)
EEGI – Eline Entertainment Group, Inc. (OTC)
|Gap Up $0.0023 - $0.0029
|Gap Fill Low $0.0019 (Buy Area)
|Gap Fill High $0.0029 (Sell Area)
|52% Potential Gap Gain = $0.0029 - $0.0019 = $0.001
|$0.001 / $0.0019 = 52%
Are Gap Fills Difficult To Trade?
It isn’t easy to make money with any strategy when investing in the stock market because of various factors affecting a stock’s price at any given moment in time.
To make investing even more challenging, the transactions and fees may offset any returns for someone with a small dollar amount in their portfolio.
However, this one strategy can help you make money when investing in Over-The-Counter (OTC) stocks.
What Is The Strategy Called?
The strategy is called “Gap Fills.” You can make money by picking stocks that “Fill Gaps” and then selling them for a profit.
All Gap Fills are typically found using the 1-Day Daily time-frame chart.
Searching for Gaps should always be done on the daily chart and generally not on any other lower time frames.
Do Stock Gaps Always Get Filled?
No, Gaps do not always have to fill. Therefore you should be cautious, do your research, and set your expectations accordingly if the trade does not work as expected.
Gap Fill Stocks Strategy
Notice after a GAP UP, the stock EEGI price comes back to “Fill The Gap.” This is called the “Gap Fill Area.”
Using this strategy, some traders often find it much easier to make money on over-the-counter stocks.
You may not capture the exact buy bottom wick of $0.0019 or top wick to sell at $0.0029 to achieve a perfect 52% gain.
However, even if you were able to realize a 10-30% gain within this Gap Fill Area should be considered a good and profitable trade.
What To Look For?
The key to success with Gap Fills is not looking for home runs of 100-200 percent gainers on each trade.
Instead, it would be best to aim for smaller gains, usually between 10-40 percent profits.
The magic comes when you repeat this process to compound your gains over a longer time frame.
By understanding Gap Fill Strategy, you will be more aware of what patterns to look for, and you will have a better chance of making a steady profit.
Remember, you should continue doing your research and making independent decisions on what feels suitable for your own goals and investment circumstances.
What Happens If I Buy A Gap Fill And The Stock Price Falls Further?
In this scenario, you can either wait until you break even or sell for a slight profit. Also, you have the ability if you decide to average down and reduce your break-even price.
To ensure you get the best price, to begin with, try finding stocks already beaten up near their lows, so you are less likely required to average down.
Lows so you are less likely required to average down. Also, ensure you are purchasing near strong support levels, which can also help minimize any potential loss.
OTC Stock Purchasing Tips
To make money on OTC stocks, it’s essential to start with a small investment and then increase the number of funds you invest as your skills improve.
The below tips may help.
- Find stocks that have recently been trending downwards for the week or more
- Ensure there is enough average daily volume so you don’t get stuck in a bad penny stock
- scale in your purchase and don’t go all-in
- keep extra money aside to average down your purchase if the price over the next few days or weeks falls further
- By investing in stocks near lows you are not chasing runners and buying them at the top
- You are also being very patient, and hoping to be rewarded with an increase in stock price
- Look for any upcoming news catalysts in the stock that might cause an upcoming increase and surge in buying volume
- Trading volume is important
- Start small to get the hang of it, then invest more once you feel comfortable and profit consistently
Are OTC Stocks A Good Investment?
The answer to this question depends on what type of investor you are and the amount of risk you’re willing to take.
Some people may find that they can achieve better returns with a portfolio of OTC stocks because they determine the risk is lower or trade with a tested and working strategy.
Other investors may find that a return on their investment significantly decreases over time.
The key is good research, and it does not matter if you are purely a technical trader looking at only charts.
As well as if you are only a fundamental trader and focus purely on the companies books comparing their liabilities vs. assets.
It is possible to find diamonds in the rough, and with OTC penny stocks trading, you should combine both to find winning OTC penny stock picks.
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