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It's tough to miss the big moves higher on stocks, after which many traders are left to tussle with the notion of what to do now when a company comes through with strong earnings and a solid outlook, but the stock gaps so high the next morning that some hesitation creeps in. Rather than just hit the "buy" button, I find it beneficial to wait a few days to see how the stock shakes out. Buying a stock after a gap higher 20% or 30% just to watch it fade sharply is one of the worst feelings. Of course, there are times when these names barely pause before they keep running, so it is a tough situation.

If I just watch the stock for a few days, then I usually want to see a consolidation pattern like a wedge or flag pattern form, then simply look to buy the breakout. Volume is often used, but I find it difficult here, since the gap-up day will be a huge volume day, so the expectations of much lower volume are basically known. If the follow-up day does come on a big volume also, pay close attention if the short interest is high. If so, then you may have a short squeeze on your hands, and some calls or call spreads may be attractive....307 more words left in this article. To read them, just click below and try Real Money FREE for 14 days.

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