Exclusive Stock Trading Tips for Using LAPs

A price lap
is a powerful indicator that a stock’s price trend is gathering strength.

Traders of any experience level know that to compete you have to know how to read price action. Technical analysis was created to help traders master price action. Methods such as Elliot Wave, trend-trading, price pattern analysis, and more to help you understand price action. One such pattern to master is the “lap”.

What is a price lap?

A price lap is when a price bar opens above or below the previous price bar’s price range. An open above the previous price bar’s close for a bullish move and below the close for a bearish move.

A price lap can be significant at key price points. Depending on the context of the price action it can signal an entry or reveal the strength of the trend.

So, which points are those key levels?

Let’s explore that a little bit more in detail…

Indicating the strength of bullish or bearish move.

A price lap in the direction of a trend reveals momentum and strength. This can help prepare you to take an entry, add to your position, or sit tight knowing that momentum is on your side.

Also, a price lap in the direction of the current trend reveals commitment on the part of the traders. In a bullish trend, it shows enthusiasm for the stock is high as well as traders taking new positions in that direction.

In a bearish trend, it reveals selling pressure and that bears have control of the trend. More and more bears are holding their short positions and/or adding to it. This increases the downward pressure, accelerating the downward price trend.

Entry Signal

A price lap can also signal an entry and that its time to take a position.

Imagine, you see a stock that was in a strong trend with lots of price laps but then enters a period of price contraction. In this period of price contraction, the stock experiences trading a tight range where it’s consolidating its gains. During this pause in movement, you have seen enough indicators that the trend will likely continue.

It’s at this moment where if a price lap forms in the direction of the trend that you may have an actionable entry signal.

Price moves between expansion and contraction all the time like night follows day. But knowing where to enter is the key to trading success. And, a price lap can help you spot those key moments and take action.

The Signs

A price lap can be an indicator of trend strength. But, for an entry signal, it is often marked by higher levels of volume.

Determining what high volume actually is can be a matter of preference. I find that using the 20-day simple moving average (SMA) as a guide can help.

Overlay a 20-day SMA over your stock chart’s volume levels. When a price lap forms at a key price point watch for volume to trade above that average level.

The reason that I prefer the 20-day SMA volume as a guide is that the market is always dynamic and changing. It’s better to focus on the 20-day SMA which can help you make better trade decisions. This is because its based on where market volume is currently trading at, not some static number. A fixed point can be left behind by a dynamic fast-moving market instead of adapting.

Billy Williams

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