Stock gap fill strategy series#

Exhaustion gap: This gap comes at the final leg of a price pattern and is an indicator of a final attempt to reach the new high or lows in pricing.Breakaway gaps: These gaps occur at the end of the shareâ€™s price pattern and is a signal to a new trend's beginning.Gaps are commonly split into four categories: Partial gap-down:Ī partial gap down in stock market occurs when the opening price is below the previous closing price, but not below previous day's low. Partial gap-up:Ī partial gap-up in the stock market occurs when a there is a rise in the opening prices but the price is not higher than the previous high price. Gap-downs occur when there is a change in investor sentiments. When the price of a financial instrument opens lower than the previous trading day it is gap-down. When the price of a financial instrument opens higher than the previous dayâ€™s price, it is gap-up. Typically, there are two types of gaps in stock trading: The reasons for gap creation can be a positive news release by the company, change in the trade analyst view, buying or selling pressure among traders, public announcements of the company's profit, among others. Gaps in stock market trading appear when there is sharp rise or fall in the price of the stock and when there is no occurrence of the trading activity. What Is Gap-Up And Gap-Down In Stock Market Trading? What is Dematerialization & It's Process.Difference Between Demat and Trading Account.Documents Required to Open a Demat Account.Aims, Objectives and Importance of Demat Account.What is the Sub-broker Program of IIFL?.This leaves the sideways price action as a kind of ‘island’ with a space on each side. Sometimes after an exhaustion gap, at the end of a trend, the price will trade sideways for a few days and then gap in the opposite direction, with a breakaway gap, to start a reversal. The island reversal pattern is an example of two types of gap. In this case the price trend reversed again and continued up after the retracement. Over to the right is an exhaustion gap in December, in the uptrend, and you can see that this is filled in a few days. Towards the centre of the chart, there’s a gap downwards, a breakaway gap, which signals the start of a heavy decline. Here’s a chart which illustrates two types of gap. As you might expect, when you do get the close below the gap this is a strong bearish signal. In fact, when the price closes below the gap, this is a further indication that what you are looking at is the exhaustion gap. The price will leap upwards, in an uptrend, and the trend will fade, with the prices coming back soon, probably to fill the gap.

As the name implies, it’s a kind of last gasp at the end of a move or trend.

This is the type of gap that may well get filled. A closing of the gap would be regarded as weakness of the trend.

Stock gap fill strategy series#

Having said that, you can also sometimes see a series of several runaway gaps in a move.Īs before, the gap should act as a support or resistance on any retracement, and probably will not get filled. It’s often around the middle of the move, so sometimes it is known as a measuring gap – some analysts will project the distance the trend has already covered, and expect it will continue for the same distance again. It’s really a sign that the trend is moving fluently. The runaway gap is a good sign of a strong trend, and occurs while the trend is moving robustly. If the price should come back and fill the gap, then that shows a failure of the breakout and trend. Although you don’t expect this gap to be filled, and the heavier the volume is the less likely that is to happen, the price can return and use the gap as support in an uptrend or resistance for a downtrend. This type of gap shows strong market action, as you get when a pattern resolves and breaks out, and will give you confidence that the trend is sound. It will usually have a heavy volume, such as you expect when establishing the new trend, and it’s not likely that the price will come back and fill this gap. The breakaway gap is often seen at the end of a price pattern, and is a sign of a strong breakout to the new direction, in the case of a reversal. There are three types of gaps, and they each have different significance. That’s not really true – some types of gaps should get filled, but others won’t. One of the trading sayings is that ‘gaps are always filled’, implying that even if the price jumps over the space, it will in due course come back there.