Profit from panic?

The chart below is most interesting and amusing.

Clearly a bunch of people thought that this stock was gonna collapse so they put in orders to sell at the earnings release. They got it wrong. Read on.

The one hour chart shows the madness better. But why did price decide to rise at the bottom of that big green candle? The 4h chart tells why.

Remember this stuff is happening in America (mostly) – where stuff is pretty highly electronic. So sellers would put in orders to sell overnight based on tips they got from ‘friends’ (etc). Some of their brokers would be watching price as the market opens and as there is a massive sell-off, they too decide to sell, in their clients best interest – and then the whole thing cascades, falling like a rock, as others follow suit. Market snipers would have waited for price to fall into that obvious band of support – and guess what happens next? As the buyers plough in to take advantage, the opposite sort of effect happens pushing price up madly. So how can one profit from this sort of panic? Hey – calm down, its coming!! The panic is sharpest at earnings releases, but the same phenomenon happens every day around 14:30PM – 15:00 PM UK time (adjusting for season and time zones etc).

The collective effect of this panic is often seen (60-80% probability) in indices such as Wall Street (US30) and the DAX (GER30). Alessio Rastani has put up a video in the public domain on how he exploits the ‘gap’. See (click on photo below) £800 plus in 5 minutes! Just to be clear to all noobs Alessio has long experience and skill with this so I don’t suggest new traders try this on live accounts with large bets. In fact this site promotes experimentation and learning on demo accounts. If you gain good skill on demo with the gap strategy below, only then should it be tried on a live account – and even so very small bets with sensible stop losses. Alessio was clear that he does not recommend playing this one on individual stocks/equities – and he gives some criteria.