Today, we have another example for the same Stock – Satyam Computers.
Assume we were bullish on Satyam on Friday. We wanted to buy the stock on Monday.
On Friday, the close was 270. But Satyam opened at 284.20, a large 14 Rupee gap. We were then presented with the same question. Should we buy, wait or ignore the trade.
Fortunately, we had defined a simple rule to trade a gap open. We will follow this rule and trace the trade for today.
We wait and take the high and low of the first half an hour. The high for Satyam was 284.40, and the low was 281.10. Since we wanted to buy, we will become buyers if Satyam crosses above its first 30 minute high.
Satyam never crossed its initial 30-minute high. We did not buy the stock, and were saved from a loss.
Note how the high made in the first 30 minutes of trading was never crossed.
