Trading Gap Fills and Wave Patterns
Playing the ABC Gap fill for swing trading entry
One of my favorite "Crowd Behavioral" patterns is the ABC Gap fill pattern. This is a normal correction pattern in the stock market that works off overbought sentiment. You can apply this to liquid individual stocks in most cases, and look ahead to spot potential entries on your watch list for trading.
A sample we will use today is (KORS), a fast growth stock of the leading luxury retailer Michael Kors. We saw several days in advance to watch for a gap fill at $57 on this stock before entering a long trade. We also spotted what looked like a classic C wave pattern coming down from a B wave interim top.
Sure enough it took several days but the stock worked its way down to $57 and hit the gap on the nose on February 26th. It immediately reversed to end the day $2.25 higher or about 4-5% swing gains on this pattern. The chart below shows a 1, 2, 3, and 4 pattern with ABC making up the 4 pattern on KORS stock.
We look for ABC and other patterns in growth plays and swing trade them long for reversals, just as the crowd of traders has stopped out and gone sour on the stock.
Courtesy of David Banister, www.ActiveTradingPartner.com