Gap Trading 1: Upward Gap on a downtrend

One of the common scenario of gap play is to identify Upward Gap on a downtrend. The gap combine with strong volume often signals the temporary end of a downtrend and provide excellent opportunity for a long position trade. Refer to the chart of Centex Corp below. After a prolong downtrend, the gap appears after a pair of bullish engulfing pattern candlestick with high volume. Traders can look to adopt a long position from this point. Often gaps are support  and resistance zone. Profit taking after a gap is inevitable but at the very least, a temporary trend change is established.

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