These are the worst of all gaps to trade, what I call "inside" gaps.

How to spot them: these are gaps that occur inside the prior day's high/low range.

Why they're bad: because they don't have institutional volume trades behind them, so they often chop around, despite initial 1/2 point up to 1 point inside gap moves.

Example:
http://www.TradingTalk.com/charts/in...GM_29Feb08.gif



Instead, focus on >1-point gap continuation (and rare fade) plays, as discussed in other threads.

Here's another one, from AAPL. Normally AAPL's a top trading stock, at least it has been this past 4-6 months. But I personally avoid interior/inside gaps like this because they're just so darn unpredictable. I prefer to wait to "take a bite out of AAPL" til it's moved outside prior day's high/low.

http://www.TradingTalk.com/charts/in...PL_29Feb08.gif




-ken

re. the AAPL gap. I like to fade that gap (providing the previous days trend was predominantly up) anticipating a retracement to the previous day's close, selling half just prior to the prev. close and exiting if the close isn't breached after a slight retracement at around 700 am PT. Is this a weak strategy?