This video demonstrates a tactical trading approach for gap downs in a bull market, specifically using S&P 500 (ES) futures. The presenter, Larry Cheung, CFA, outlines his decision to initiate a long position despite a significant pre-market gap down, viewing it as a potential opportunity. The core of his strategy involves real-time order flow analysis using Bookmap software to monitor shifts in supply and demand. The video showcases the process of scaling into a position, interpreting the "red lump" (supply) and "green lump" (demand) on the order book to confirm market strengthening. It concludes with a partial exit, illustrating the rapid market movements after a sell-off and the concept of leaving a "runner" to capture additional gains.
How To Trade Gap Downs in Bull Markets (S&P 500 and Bookmap Orderflow)
0:00 Market Gap Down & Initial Assessment: The video begins with S&P 500 (ES) futures down 45-46 points in pre-market, opening near the pre-market low. Despite this, the presenter identifies it as a potential "long setup" for a "starter position" within a bull market, noting that opening near the low isn't inherently bearish.
0:43 Initiating a Long Position: An "order filled" notification confirms the presenter's entry into a long position.
0:55 Scaling In and Price Targets: Observing the market strengthening, the presenter decides to add to his initial position. He sets a limit order at 5940, targeting a 15-point gain, and plans to add a third position to average up further.
1:39 Order Flow Analysis with Bookmap: The presenter utilizes Bookmap to analyze order flow. He notes that the "supply numbers" (represented by the "red lump") are decreasing, indicating sellers are either retreating or cancelling their limit orders. Simultaneously, the "green lump" (demand) on the order book is "getting fatter," signifying strengthening buying interest and supporting his long trade.
2:15 Partial Exit and "Runner" Strategy: Another "order filled" prompt indicates a partial exit from the position at 5931.75. The presenter expresses a "whoa what the" reaction to the quick market movement post-sale and explains the strategy of leaving a "runner" (a small remaining portion of the trade) to potentially capture additional upside.
Key Takeaway: The video demonstrates a proactive strategy for trading gap downs in bullish conditions by interpreting pre-market sentiment and using real-time order flow data from tools like Bookmap to confirm entry and scaling decisions, while also managing rapid market shifts through partial exits and "runner" positions.