After hours on Wednesday, the company announced a corporate update and financial outlook. The company also announced a reduction in the nominal value of shares.
You can see in June ADXN gapped down from roughly $3.50 to around $2. That leaves a gap on the chart. Now, normally a big gap down is bad news … Especially for traders who buy and hold...
But for day traders, gaps can create opportunities.
After a stock gaps down, if it consolidates and grinds back up to the gap level, it can often mean the gap will fill. Meaning the stock will climb to the lows set before the gap.
And when a stock has news, that's added fuel that can help it break out of consolidation and fill the gap.
So why is a gap fill a strategy some traders use?
Think about this…
What's the bagholders dream?
To get back to breakeven. So the holders from above the gap won't sell in the gap. They want to break even.
And the people who bought below the gap won't sell, because they're all green.
And like a lot of trading patterns, they become self-fulfilling prophecies because traders believe in them.
But nothing in trading is guaranteed…
And the gap won't necessarily fill in one day — as ADXN showed us yesterday. So keep your expectations in check.
If you like this strategy and are looking for another potential gap-fill play, look at my Amazon.com, Inc. (NASDAQ: AMZN) trade idea from the weekly watchlist. I think if it breaks $125, it could close the gap to $135 and potentially go even higher.
For higher-priced stocks like AMZN, remember the 'rule of 10.'
With many stocks crashing left and right, many people are having a difficult time growing their trading accounts right now.
But this coming Thursday July 28th at 8 p.m. ET…
Tim Sykes will reveal a strategy that's so powerful he believes traders have the potential to grow a $1,000 account into a $10,000 account in just the next 46 days!
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*Please note that these kinds of trading results are not typical. Most traders lose money. It takes years of dedication, hard work, and discipline to learn how to trade, and individual results will vary. Trading is inherently risky. Before making any trades, remember to do your due diligence and never risk more than you can afford to lose.
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