![]() ![]() This brings me to my next point.Ī gap up will not always advance or move up and if it does, often it will not move up immediately. This combined with new buyers thinking that this stock is now a good opportunity can help propel the stock higher. If a stock gaps up over support, anyone shorting the stock will now be forced to liquidate and will have to buy to do so, which if heavily shorted can cause what is called a "short squeeze". When the stock opens up much higher or lower, many traders will now be under water. When a stock gaps over resistance or under support not only does it bring in new buyers and sellers but it also surprises or shocks existing share holders as they were likely using the resistance or support levels as stop placement. Often times these "gappers" make the biggest moves on the market. These news releases or earnings reports act as a catalyst and bring in a large volume of buyers and sellers that can help propel the stock to new levels as well as help the stock trade outside of it's normal range and likely advance more than the average stock will. This catalyst can lead to the stock moving independently from the market and can also make the action of the stock more predictable, giving us an edge. News or press releases, earnings reports, offerings, buyouts etc. Most gaps usually have a catalyst that we can find, ie. Gaps are important because insiders usually have knowledge prior to news being released and prior to the general public and they will buy or sell shares before we have the chance, forming the gap and giving us an idea or hint that something is about to take place. A gap happens when after hours and pre market trading take place which will form a gap in the stock chart once price exceeds the previous days closing value. The below gap down in the Goldman Sachs chart is filled intraday two days later followed by a breakout above the filled area the day after the fill.Ĭhart courtesy of TrendSpider.My watchlist consists primarily of gaps and momentum. A fill the gap stock is one giving a strong reversal signal that the gap failed. The bigger the gap the stronger the signal whether it continues or reverses. There are few technical signals stronger than a gap in price. The path of least resistance begins in the direction of the gap in price action but a gap fill is an even stronger momentum rejection and reversal signal in the opposite direction. During a trend in price a gap against the direction of the current move can signal the trend is weakening or reversing. ![]()
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