A Lesson in Multiple Timeframes

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Yesterday, Smith & Wesson (SWHC) gapped up ahead of earnings.

Now, sometimes gaps, up or down, are meaningless. Other times, they are so powerful that, if you can read them correctly, it's easy money. As was the case with SWHC.

A look at the daily chart, below, will show you that SWHC actually fell hard on Wednesday. At first glance, you might be thinking, no way I buy that. But, upon a closer look you'll see it was right into support. So, while there was strong selling pressure on Wednesday, it came right to where the buyers would be looking to get involved.

Sure enough, Thursday gapped higher and into the red bar.

The stage was set.

Now that SWHC was gapping up, it is our job to assess the quality of the gap.

One of the ways we can do that is by looking at the hourly chart.

Notice the momentum move down that took place. That created a void and room for price to move back up. With the gap up the following day, the bias began to shift from bearish to bullish.

The initial attempts to move lower failed and slowly we started to see the bulls becoming more and more confident. Throughout the first part of the day we saw relatively equal highs while the lows crept higher.

A subtle, but powerful, nuance.

So, you can see, in the chart above, that if SWHC could breakout, it would have room up to the area marked “profit zone.”

Now that we can see the bullish alignment on both the daily and 60 minute, let's take a look at the 15 minute.

Here, you can see every detail and then some.

Take special note to the initial gap up. It opened above what was resistance. That means it will now act as support. You can clearly see that happening with every attempt to move lower; buyers just kept showing up.

As the day went on, a nice ascending triangle formed which gave the perfect entry and a tight stop.

Once SWHC broke out, it never looked back until it reached the “profit zone” which is where the next level of resistance can be seen.

Make it your mission to find these areas of price void combined with multiple timeframe alignment and you will enjoy nice, easy moves to targets.