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{{Unreferenced|date=July 2010}}
A '''gap''' is defined as an unfilled space or interval. On a [[technical analysis]] chart, a gap represents an area where no trading takes place. On the Japanese candlestick chart, a window is interpreted as a gap.
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:* Measuring gap or Runaway gap
'''Example of 4 types or gaps (Ex-dividend gap excluded)'''
▲[[Image:Allgaps new.jpg|center|thumb|260px|Sequence of Gaps]]
* '''Breakway gap''' : It occurs when prices break away from an area of congestion. When the price is breaking away from a triangle (Ascending or Descending) with a gap then it can be implied that change in [[sentiment]] is strong and coming move will be powerful. One must keep an eye on the volume. If it is heavy after the gap is formed then there is a good chance that market does not return to ''fill the gap''. When the price is breaking away on a low volume, there is a possibility that the gap will be filled before prices resume their trend.▼
* '''Common gap''' : It is also known as ''area gap'', ''pattern gap'' or ''temporary gap''. They tend to occur when trading is bound between [[support and resistance]] level on a short span of time and market price is moving sideways. One can also see them in price congestion area. Usually, the price moves back or goes up in order to ''fill the gaps'' in the coming days. If the gap is filled, then they offer, not much in the way of forecasting significance.▼
▲It occurs when prices break away from an area of congestion. When the price is breaking away from a triangle (Ascending or Descending) with a gap then it can be implied that change in [[sentiment]] is strong and coming move will be powerful. One must keep an eye on the volume. If it is heavy after the gap is formed then there is a good chance that market does not return to ''fill the gap''. When the price is breaking away on a low volume, there is a possibility that the gap will be filled before prices resume their trend.
[[Image:breakawaygap new.jpg|center|thumb|260px|Breakaway gap]]▼
* '''Exhaustion gap''' signals end of a move. These gaps are associated with a rapid, straight-line advance or decline. When they are formed at the top with heavy volume, there are significant chances that the market is exhausted and reversal is ahead. A reversal day can easily differentiate between the Measuring gap and the Exhaustion gap.▼
* '''Measuring Gap''' : Also known as Runaway Gap, a Measuring gap is formed usually in the half way of a [[price]] move. It is not associated with the congestion area, it is more likely to occur approximately in the middle of rapid advance or decline. It can be used to measure how much further ahead a move will go.▼
▲It is also known as ''area gap'', ''pattern gap'' or ''temporary gap''. They tend to occur when trading is bound between [[support and resistance]] level on a short span of time and market price is moving sideways. One can also see them in price congestion area. Usually, the price moves back or goes up in order to ''fill the gaps'' in the coming days. If the gap is filled, then they offer, not much in the way of forecasting significance.
[[Image:commongap new.jpg|center|thumb|260px|Common gaps]]▼
▲Exhaustion gap signals end of a move. These gaps are associated with a rapid, straight-line advance or decline. When they are formed at the top with heavy volume, there are significant chances that the market is exhausted and reversal is ahead. A reversal day can easily differentiate between the Measuring gap and the Exhaustion gap.
[[Image:exhaustiongap new.jpg|center|thumb|260px|Exhaustion gap]]▼
▲Also known as Runaway Gap, a Measuring gap is formed usually in the half way of a [[price]] move. It is not associated with the congestion area, it is more likely to occur approximately in the middle of rapid advance or decline. It can be used to measure how much further ahead a move will go.
[[Image:measuringgap new.jpg|center|thumb|260px|Measuring gap]]▼
==Caution==
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==Trading Gaps for profit==
Some market speculators "Fade" the gap on the opening of a market. This means for example that if the S&P 500 closed the day before at 1150 (16:15 EST) and opens today at 1160 (09:30 EST), they will short the market expecting this "upgap" to close. A "downgap" would mean today opens at for example 1140, and the speculator buys the market at the open expecting the "downgap to close". The probability of this happening on any given day is around 70%, depending on which market you look at. Once the probability of "gap fill" on any given day or technical position is established, then the best setups for this trade can be identified. Some days have such a low probability of the gap filling that speculators will trade in the direction of the gap.
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* [http://www.investopedia.com/articles/trading/05/playinggaps.asp ''Playing The Gap''] at investopedia.com
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