Short-term trading in the Indian stock market thrives on volatility, creating opportunities for traders who know how to exploit price gaps. Two powerful tactics for day and short-term trading are the Gap and Snap and Gap and Crap plays. These strategies, inspired by guerrilla trading principles authored by Mr. Oliver L. Velez, focus on gapping stocks that often trigger significant price moves. Here’s how these day trading strategies can be adapted in the markets.
Table of Contents
The Gap and Snap Play
The Gap and Snap play is a bullish strategy is part of Guerrilla trading strategy, aimed at oversold stocks that open lower after a sharp downward trend. It’s particularly effective with high-liquidity stocks like those in the Nifty 50 or mid-cap stocks priced above ₹1,000.
The Setup
- Look for two or more consecutive bearish days (red candles on the chart).
- The second candle should be a bearish wide-range bar, preferably with a long body and little or no tails. For a ₹1,000 stock, the candle should be at least ₹50 in length, with tails less than 20% of the candle’s total size.
- If there are more than two consecutive bearish days, the setup becomes even stronger, indicating an overdone selling trend.
The Action
- On the following trading day, wait for the stock to gap down by at least ₹20–₹30. This creates a visible gap on the chart between the previous day’s close and the current day’s open.
- If the stock rallies to fill the gap and trades ₹5–₹10 above the previous day’s low, enter a long position.
- Immediately place a stop-loss ₹5–₹10 below the current day’s low. This is your safety net in case the stock resumes its downtrend.
- Aim for a profit target of ₹50 for a ₹1,000 stock, or exit no later than the third trading session if the target isn’t achieved.
Guerrilla Trading – Why It Works
- After a series of bearish days, retail traders often panic and sell their holdings at market open, increasing downward pressure.
- Market makers or institutional investors step in to buy the stock at a low price, creating a rally.
- The strategy works well with large-cap and mid-cap stocks with high trading volumes, such as Reliance Industries, HDFC Bank, or Infosys.
Click on the picture below to Open Demat account with Zerodha
The Gap and Crap Play
The Gap and Crap play is the bearish counterpart of the Gap and Snap. It targets overbought stocks that open higher after a sharp upward trend, only to reverse due to profit-booking.
The Setup
- Look for two or more consecutive bullish days (green candles on the chart).
- The second candle should be a bullish wide-range bar, with minimal tails. For a ₹1,000 stock, the bar should be at least ₹60 in length.
- More consecutive bullish candles indicate stronger greed in the market, increasing the likelihood of a reversal.
The Action
- On the following day, watch for the stock to gap up by at least ₹30–₹40.
- If the stock begins to sell off and trades ₹5–₹10 below the previous day’s high, enter a short position.
- Immediately place a stop-loss ₹5–₹10 above the current day’s high.
- Aim for a profit target of ₹50 for a ₹1,000 stock or exit no later than the third trading session.
Guerrilla Trading – Why It Works
- After a strong upward move, retail traders often buy stocks at the open, creating overbought conditions.
- Profit-taking by institutional investors or experienced traders leads to a reversal, and the price falls.
- Stocks like Tata Motors, Bajaj Finance, or Adani Enterprises often show strong gaps and reversals, making them ideal candidates for this strategy.
Key Takeaways for Intraday Traders
- Both Gap and Snap and Gap and Crap strategies leverage market psychology: fear and greed.
- Use daily candlestick charts to identify setups and confirm gap criteria (e.g., a gap of ₹20 or more for mid-cap stocks).
- Stick to the four essential elements of every trade: entry, stop-loss, target, and trade management.
- Focus on high-liquidity stocks and avoid illiquid counters to ensure smooth execution.
By applying these strategies in the Indian markets, you can effectively trade stocks with high momentum and turn gaps into profitable opportunities. Remember, discipline and risk management are critical to mastering these tactics.
Disclaimer: This strategy is inspired by the Guerrilla Trading principles proposed by Mr. Oliver L. Velez in his book “Power Trading: Winning Guerrilla, Micro, and Core Tactics and Guerrilla Trading Tactics”. Readers to note that this strategy is given for educational purpose. Not meant to be any kind of recommendation for trading.
