FAQs Frequently Asked Questions

Q: In your book you say a stock should not undercut the low of the gap up. On page 171 of your book you site BIDU and it's MArch 4 gap up. On March 6 however BIDU does undercut the low of March 4. Can you clarify for me?

A: From page 171 of our book (hardcover 1st edition):

Rule #2
In the days following the gap-up, sell if the stock trades below the intraday
low of the gap-up day. One can allow the stock to close first before deciding
whether to sell on an intraday move below the gap-up day's intraday low.
Stocks with higher volatility can be given a little more room than those with
lower volatility. Also watch for pullbacks just under the intraday low of the
gap-up day that are close to and hence might find support at the 10-day,
50-day, or 200-day moving averages.

Thus, it is okay to allow a volatile stock to undercut the low of the gap up day by a small amount, in context with its chart pattern. A 1-2% undercut can be permitted in some cases.