 Ten years, she changed careers from banking to pursue a security trading career in 2008. A self-taught day trader with over five years of experience, Melissa's specialty is trading strategy that focuses on shorting stocks that gap. Without further ado, I'm going to hand it over to Melissa. Unmuted. Okay, take it away. Hi there Amy, welcome everyone. Can you see my PowerPoint here? It should be green. Let's give me a heads up. Amy, let me know if you can see it. Thank you. Wonderful. Thank you so much. Thank you so much for having me today, Amy and Dan and John. And welcome. My name is Melissa Armel and I own a company called the Stockswush LLC. Today's topic is going to be about trading volatility in gaps. And actually gaps is a strategy that I trade. If you're interested in more information, you can go to my website here at www.thes stockswush.com. You can also email me if you'd like more information at Melissa at the stockswush.com. Everyone always asks me, are you a trader? The answer is yes. I actually only teach a class on what I personally trade. So I am an educator, but I only teach what I personally do and I've been trading this strategy now for more than five years and it's gaps. I don't know if you've ever thought about trading gaps. A lot of people see things out there about gaps. However, not everything that's out there about gaps is actually the correct way to trade gaps. And we're going to talk about that today. This gaps are a very specific and specified way to trade. And it's one of these things that actually provides a lot of volatility, which is what we're going to talk about today. Many people trade and they wish, gosh, I wish I had more momentum in the things that I was trading. And actually, if you've been trying to trade the market or any strategy where you needed the market in the last week, you have been chippy-choppy back and forth because the QQQs, the spies, the market, the NASDAQ and the New York Stock Exchange ETFs have been trading in a sideways range for the last few days. The market's bullish, but it's been having hard time getting, setting a trend in a directional trend with hard moves in one direction with full momentum because the market is a little bit extended and yet it is bullish. It is absolutely bullish. So if you want to get paid, you've got to have momentum as a trader. And you have to find this pretty much at least three, four days a week if you're going to trade for a living and this is what you do for a career. So how do you find volatility? I find it in gaps. Here was an example of a gap back, actually, this was Valentine's Day. WTW, this is Weight Watchers, gap down here on February 14th. I saw this gap and I decided to play this gap and met my criteria and this had volatility. It had a lot of nice volatility in here to play on the day of the gap and then it also followed through the second day down, which many times happens. Why? Because volatility can continue. It can continue not just for the day, but sometimes for swing trades or core trades. So the key is to find a stock to trade before the volatile move happens because you want to find the stock beforehand so you don't miss the move. If you pull it up in your scanner, everybody in the world sees it after it's down 20, 30, 40% on the day then it's too late. The volatility has happened. It's ready in play. So how do you find volatility before it sets up? Well, you need a strategy or a method to find the volatility that inherently has volatility. So the strategy of gaps, actually the very essence of gaps themselves is a strategy that has inherent volatility in it because it is the gap itself when it is made that is made with volatility. So then you have a method to pick the stock symbol, whatever company it is. This is an equities and trading equities in the stock market that will play out within volatility in that specific day. So gaps help you spot the volatility before it's too late. Before it's too late, meaning before it's already gone. The volatility happens actually in the creation of the gap itself. And that's why if you trade it as a strategy on the day as a day trader or swing trader or core trade, you're going to get continuation and follow through of the volatility that happened in the gap in the first place. So I'm spotting the volatility as soon as I see the gap on the day that I see the gap. Now, you have to know which direction to play the gap. And that's what I also teach in the class as well. But let's look at con con here gap down. This was the night before the night before it closed at 55 something and open the next day down here under $36. That's a gap. Okay, the stock had volatility. It actually got sold off and or shorted overnight and lost $20 of value overnight. Now this is the next day. This is at 930 Eastern time when the market opens, it opens here and it opened under 36. There was volatility on the day volatility in the gap and on the day. Okay, and you want to see it before it's too late. Otherwise you're not going to you're not going to be able to make any money off of it. And really, really truly the way to make money as a trader is to play a momentum. I mean, that is it momentum with size. That's how you make money as a trader and you can't trade anything with size, unless you're good at actually taking entries as a trader and knowing how to get directional bias correct. So you don't do something like go long con because it was not a long. It was a bearish gap, a highly qualified bearish gap to the downside. This was a good short, not a long. So you've got to know how to play it besides how to pick the spot, the volatility. And if it's too late, you can't get paid. If it's too late, you can't get paid, you have people trying to buy things to wear things back and forth, back and forth. You can't get in stuff too late or it's going to be choppy and you're going to have a late entry and also not going to get the right risk to reward. Risk to reward is important in trading too and we're going to talk about that in a minute. So the goal is to get a big move and follow through. It's the follow through that traders lock with trades. This is one of the reasons that people fail at their trading. They don't have follow through in their trades. They take something, they make one risk unit, they risk 10 cents, they make 10 cents, they risk 10 cents, they make 15 cents. People have a hard time finding things that are going to have follow through and you have to have follow through. It's the only way you're going to get paid. There is no risk to reward in trades with lack of follow through. Trades with follow through have good risk to reward coverage of three times the amount you risk and many times over five times the amount you risk of money. That means the amount of money you're risking in the trade itself. Volatility creates good risk to reward trades because they have big moves and also you can get in them before the move happens when you see the setup and what in the gap. Okay? Because the gap is telling you that it's going to have the volatility. So it all comes down to risk to reward if you want to be a profitable trader. I mean, if you actually want to do this for something for a living. Now some people trade for many, many reasons. Some people are doing this for part-time income. Some people are doing this for extra income. Some people are doing this for long-term retirement. They want to quit their job and retire early. But if you're doing this where you need to make money on a regular basis to pay your bills, which you can do as a day trader, you can, then you have to have good risk to reward. And you need a strategy that's going to provide you with momentum volatility and good risk to reward opportunity. It's the opportunity you're looking for when you're seeing the setups. Volatility is how you make money as a trader. And here is another example of what happened here with the con. The con rallying, this is into the morning. Con open and rallying into the morning from the gap down the night before and set up. This is what I call the money, money trade. The stock set up here around 12 o'clock major reversal time. It's right here around 38 ish rally rally on the open held held the resistance dropped down broke the low of the day and actually went all the way down to $32 into the close was a beautiful, beautiful bearish move. Now this is a big trade. This is what I call volatility. This is momentum. How do you find this? Well, you need to look for con, because again, if you're looking at your scanner in the middle of the afternoon, by the time con pops up, cons all the way down here, well, you don't, you don't get this whole thing. You have to get this in order to get paid as a trader. This is the money trade right here. This is the risk to reward trade. This is what's paying you. This is your whole day, actually. So making money with volatility is easy. It's easy and fun once you know how to do it because it's fun because you can make a lot of money. And there's nothing more fun than making a lot of money if you're a trader because it's certainly not fun to lose. And everyone's had periods of the life where they've lost and trying to figure stuff out. But eventually you get to the point you say, wait a minute, why am I doing this? And you say, I'm doing this to make money. And you do have to find a way to have a strategy that makes money. Because if you can't find a strategy that makes money, you're not going to be trading for long and you're going to get frustrated and down on yourself. And there's no reason to get down on yourself in the market. There's actually things that you can do that make sense that work in the market to be profitable trader. It does not have to be an endless struggle. And fast profits are possible in the market, meaning as soon as you take the entry, you're up. That's what I mean by fast. As soon as you take the entry, you're up. You're up. You're not down as soon as you take it. If somebody asked me in the trading room today, they were saying they were asking about a trade and they were down as soon as they took it. And I said, that's a bad trade. A good trade is a trade where it goes on to work almost as soon as you take it. And that's kind of a clue. It's a clue there, how you know. Sometimes things take a little while to work, but not usually. To be honest with you, not usually. You can book money easily once you learn how to play volatility. And it's about finding a focus. So how do you find volatility in gaps? How do you find the gaps that will move big? Because not every gaps move big. Move big. Some of them are actually small, tiny moves. Some of them are big moves. So you have to find the ones that have the big moves. And you need a system to do this. Using a system is significant to your success, because there are so many stocks each day in the market to trade. And if you can narrow down what to focus on, you will have a better chance of making money each day you trade. Pinpointing the quality stocks to trade is imperative for consistent profits and large volatile moves. So having a detailed way to find which stock to trade will make it easier for you to trade each day and therefore achieve success. And that is the goal. Obviously the goal is to be successful. So how do I find my gaps when there's so many things in the market, so many stocks, so many companies on both markets? I use a rating system. I use a checklist. I take a notebook and a pencil every morning. I go through and use a 26-point rating system that I created. And this is what I teach people. This is the only class I teach people this. I teach them how to trade gaps. I teach them how to rate the stock, rate the stock, go through, check through and see. Point one, yes. Point two, yes. Check it off. And then I add them up. If the stock rates 20 points or more, I look to trade it on the day in the direction of the gap. And that's how I figure it out. It actually is very simple once you know what to look for. It's just that many, many people do not know what to look for when they're trying to determine gap directional bias. It's directional bias. Now for those of you that do not know what a gap is, I'm going to go over this here before I show some examples. A gap is actually when a stock gap from the opening price today is different from the closing price of the previous day's trading. A gap is a break in the price action from one day to the next. That's it. That's all that it is. Here's a gap in WM. It opened at 42.69. This is on the 18th of February. The night before closed up here at 43.67. That's a gap. That's a gap. The closing price yesterday on the 14th, it was Friday. When it opened Monday morning, no, this is Tuesday morning because of the holiday. When it opened Tuesday morning here, it was 42.69. That means it's different from where it closed the night before. Since 4 o'clock Eastern time, here we are at 9.30. This is a gap. There's lots of gaps. Here's another gap here. The stock closed here this day and the next day at 9.30, it opened down here. This is a gap. This is a gap. The stock closed here and opened down here. This is a gap. These are all bearish gaps I'm showing you. There are bullish gaps too. Let's see if we can find a bullish gap in this chart. Yes, yes, we can. The stock closed down here this day into this pivot here on the 29th, gapped up. Gapped up, gapped up and triggered on a daily buy-in set up here the next day. This is a gap up. This is a bullish gap. There is bearish gaps and bullish gaps. I like to trade to the downside. That's my preference. It's about getting the right knowledge. The knowledge is know what to look for, what to look for, where, where, how. It's in the charts. I read technicals. I read price action. I trade based on technical analysis. I do not read anything about fundamentals at all. In fact, I specifically try to stay away from all of that because I don't want it to screw up my head with the bias of what I'm seeing in the price because when I see the price of something, I know if it's telling me if the stock is weak or if it's strong. In the end, you are not Warren Buffett and neither am I. You might wish you are Warren Buffett, but you're not. If you want to trade the market, you have to consider exactly who you are. In order to day trade, swing trade, or core trade successfully, every individual needs a monetary goal. How much do you want to make? Is the money for income? Is it for retirement? Trading is about making money in income generation. Trading on any level isn't about unlimited speculation without thought to risk, consequence of actions, a profit consideration. You are not a value investor like Warren Buffett because that is what he is. Trading is not about getting a bargain. It's not about buying it here and holding it for 30 years. Buy low, sell high. You're not a value investor. People forget this. They can look up to someone like Warren Buffett, but that's not really what you as an individual are set out to do. We are not bargain hunters or finders. You are doing this to make money within a certain period of time. If it's a day trader, you're doing it to make money before 4 o'clock Eastern time. You have to be profitable by 4 o'clock Eastern time. I know people that hold trades overnight because they're not working on the day. That's the worst thing to do. If you're not profitable before 4 o'clock, you need to get out. Flat, take the loss. You have a limited risk that is fixed and requires a certain payout. You cannot hold trades in the wrong direction until they turn around without undue stress, losses, and risk. Stress is the key word there. It's key and above over losses because when you're stressed to huck out, you're going to make more bad decisions as time goes on. That one loss will turn into five losses after that because it'll be so stressed you'll make bad decisions. Trading is about income generation. Trading is not about value investing. You've got to think about it and consider this. Let's talk about an example here. Here is SM. This was actually a beautiful gap which is still playing out and still continuing down. The gap happened back here. This was earlier this month, February 19th. It had a beautiful trade at it. A first trade here which you could have shorted immediately out of the gate for what? A volatile move. The stock dropped down like a banshee right into the open here. As she was done very quick, talk about fast trades, fast profits. Here it is. How would you have known how to do this? Well, you would have had to know how to read this gap, to rate the gap, to see if it qualified, to see if it was really going to move in the correct direction, have volatility and move to the downside, which it did. The entry time was 931. If you shorted this stock, the entry was $77.74. Stomp is $78.10. Risk was $0.36. This is an advanced risk of $540. Again, your risk needs to be fixed for each trade. You'll be taking 1,500 shares. Exit $73.75 into the drop. You could have made almost $6,000 in 3 minutes. That is volatility. That's momentum. You actually risked $540 and you could have risked less. You could have risked half that, a third of that. The idea is you still would have produced an 11-hour trade, meaning for every dollar you risked, you made $11. For every $2 you risked, you made 11 times that amount. This is why you can really, really produce if you know how to trade volatility with size. It's really the risk amount here because the stock was a little big. Here was the entry. Stop over here. Drop. Drop out. Drop out. I have a rule you have a certain number of hours into a trade. Out. You let it drop though. Until what? Until the next reversal time. Guess what? Volatility happens fast. That's what's so great about this. Then the trade set up again. Are you surprised? No. Why? Because volatility can set up over and over and over again. But you still have to get it early. You don't want to be getting in this at 10.30, 11 o'clock, 10.45. Stop, set it up again, right in here. Beautiful time in here that's set up. Tippy, tippy top and you get in. The price is $75.40. Stop was over $76.05. If you did this and risked $552 and got out at 73, you made over two grand. This is again a wonderful trade, 3.6. You're looking for three, three minimum. This is the second trade you would have made three risk amounts on. This happened again in 10 minutes. If you would have taken the first trade, say you would take the first trade and you make almost $6,000, then you say, well, I'm going to take the second trade. The second trade sets up. You risked 500 something on the second trade. Worst case scenario, this fails. You still make over five grand on the day or 5,400. If it goes on to work, you're being six plus two, that's eight. That's $8,000 in one trade. Why? How did you make it? Because of this. Because of that. That is volatility. That is momentum. You can see how you can really make a living doing this if you decide that you want to learn how to trade momentum and not only that, find it. You have to be good at finding it and you have to be good at the entries. Can you pay your bills making $2,000 on a trade? I don't know. I don't know where you live. I don't know where you live in the world. It's $2,000 is a little bit of money to you or a lot of money, but it's actually quite a bit of money to make in one trade in the market in just a few minutes. Because you could duplicate this, not just on the day, but you could duplicate it the next day and the next day and the next day. Then lo and behold, there you go. You're a trader and you don't have to work any other jobs, not unless you want to. If you wanted to do a swing trade in this, your sizing would be the same as far as your risk or you could size yourself down. Why? Because leverage is different when you hold overnight. You might take a teeny, weeny little bit of this into a swing trade. You might take your normal size for the day trade and then take a couple hundred shares then for a swing trade. Why? Because you see how damaging this gap is. It has a huge swing trade target and you say, I'm going to just hold a little bit of this. So you take your size, you take the normal size, 1500 shares for example in the first trade or you take them in the second trade and you keep 200 of it. And really the stop has to be over the high of the gap. So here we have the stop over the high of the gap, the original stop, but you're taking much smaller size. You're risking $72. The leverage is different, but risk to reward is still just as great. In the second day of the actual move of the gap, you are profitable now risking $72 making $14.48. This gap, this gap itself, if you knew how to play it, played the first day of the second day, played two trades in the first day, you could have actually shorted the second day as a day trade and you could have done as a swing trade and you actually could still be in this as a poor trade. I was looking at it today here even before I did the webinar. 20 times you might, you risk remaining top profit in a swing trade, that's like unheard of. And how are you able to do that? Because you take the day trade end trade and you're not getting out of the whole thing into the drop because you read it has a bigger target for an overnight swing trade. That's how, that's how you know. And this is just unheard of to have this kind of risk to earn a swing trade. Most swing trades are one to two. Day trades, you should be in the three to five to six range, 10 on the high end if you got a good move. But for have a swing trade pay 20 times the risk amount is huge. And it happens because when these companies want to sell off hard, when they want to get sold off from the longs, when they want to get shorted, there's nothing that's going to stop it from happening. I mean, they just go and the momentum comes in and it's the volatility. So momentum volatility happen every day in the market. You just have to have a way to find it before it happens. The class I teach, where I teach how to find these stocks is called the Golden Gap course. Again, this is what I trade. This is the only thing that I trade and I trade every day, Monday through Friday, if I get a good gap, if I don't get a good gap, then I don't train one day. But there's plenty of days to get good gaps. The Golden Gap course teaches one solid strategy to trade gaps effectively to find momentum of volatility in stocks. The course teaches how to reach support and resistance to take positions in the right direction. I find this is the biggest challenge for traders. When they're looking at gaps or even how to take correct reads on trends into support and resistance, they've had the overall directional bias incorrect, because you have to be in the train in the stock in the move or the market in the right direction to get paid. The course teaches a more proficient and advanced way to recharge, focusing on technical analysis and gaps. Again, I trade based on price action, which is technicals. The course teaches how to get conviction in your trading and the market as a source of wealth by trading with the side of volatility and power for consistent profit. And if you've been at the point in your trading where you've never had what I call a common day, where you actually have a day where there's a common front of the number and you're a day trader, then I understand it's hard for you to think, gosh, is there really, is there wealth here in the market? Yes, yes, there is. There is. There's so much money that's in the market, we couldn't even conceive of it. Like if we all thought of it would be difficult for us to conceive of it, it would blow our minds. But it's there and it's there and all you need is a tiny, tiny, tiny little piece of it. Because even to make several thousand dollars on a day and a chart like that in SN is a smidgen of a piece of what went on in that stock on that day. Now, how do I do this? I use a checklist. The checklist tells you what to look for to find the volatility to trade and you follow it. 20 points are higher based on the 26-point system, you watch it to trade in the direction they got. Anything under 20 and 18, 19 is a 50-50 chance of failing or working, you can watch on the day and set up, but no, you may have to take it more than once or it could fail. Rule is 20 or more and that's just what I do. And if it doesn't rate high enough then I just don't trade it. So the Golden Gap course is a complete system to use to trade. It teaches you how to rate the gap, find the gap and then also take the entries and also how to read support and resistance and find targets. So the class is a full today course and how to strategically find pick and play stocks that are professional bearish gaps. It's an online class, retakes are free, you can be anywhere in the world and take it because the class is online, you sign into my live online classroom. I do the class on a weekend because I train during the week, so the class is always Saturdays and Sundays and the class is March 8th and 9th from 9 a.m. to 5 p.m. Eastern time. The cost is 24.99. It is a professional bearish gap system. People always ask me, can I use it for bullish gaps? Yes, but you flip the points. And I prefer to do shorts because shorts pay very big. Momentum happens, volatility happens to the downside so much faster than it does to the upside. It just does because when people are in longs and then their stock gaps down and they're down money from their long trade, they panic and they get out and they get out very, very fast. And the more people get out as the stock loses value on the day and it creates those types of moves like you just saw on the SM. So that is my presentation today. Thank you so much. Does anyone have any questions? Anyone have any questions? Okay. Questions for Melissa. I have one that just came across the board. What is the rule for gaps? Do they continue to move in the same direction or reverse? Well, I think what the person is asking is about, do you do it in the direction of the gap or do you do a gap fill? The reason I created a system to rate the gap, which is looking at the price on the daily chart is because if the gap raised 20 points or more, I traded in the direction of the gap. If the gap does not rate 20 points or more, the gap has a possibility of failing on the day and meaning that it would not necessarily fill the gap because there is really no such thing, but not work as a day in the short. For example, it would actually perhaps might fail that it will not be a short. It could be a long or it might actually not provide any directional reader bias, meaning that you couldn't short it or go along it to make any money at all. You were looking for something that has a definitive, very high percentage of chance of working in the direction of the gap to get the right volatility. Every once in a while, a gap will do what looks like a gap fill, but it's not really a gap fill. It's actually a failure that happens in a gap that wasn't that good to begin with. For example, I don't have the chart up here, but FSLR today rated 19 points. It didn't rate over 20. I didn't watch it. I didn't trade it. I didn't short it. As soon as FSLR opened today, it rallied hard and fast into the open. It got bought. It actually got bought on the day. It was a failure to short. No one should have shorted that stock today. Even though it was a gap down, it didn't rate high enough to improve my system. So I just didn't short it. Didn't mean I bought it. I didn't short it then. Some gaps just don't work in the direction of the gap, but that's why I created a reading system to know the difference. You see? But this idea of gap fill is not right. I can't talk too long about that because I didn't want to go over in the time, but typically when something fills a gap or what people think is filling a gap, it's a rally. It's a rally into resistance and a chart that's in a downtrend, and it's profit-taking for people that are actually short the stock that cover their longs. That's not what happened though in FSLR today. When I'm done here today, I will do a video on that and put it on YouTube because I actually saw that stock open and fail right on the day and get bought, and I can do a video on that later for everybody, but there is no such thing as a gap fill. It doesn't work. You can't trade like that. Please don't do it. All right. Thank you very much, Melissa. That's all the time we have for you today. Can you please remind us again how to get a hold of you? Sure. You can get a hold of me and email me at melissa, m-e-l-i-s-s-a, at thestockswush.com. There you go right there. You can email me right there. I'm the Stock Swoosh. It's all me. Excellent. Thank you very much for being here, Melissa. You did.