Gaps - Gaps Some are commonplace and mean little, while...

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Gaps Some are commonplace and mean little, while others are less frequent but meaningful. Security: PGR Position: N/A Gaps are changes in price that occur in the absence of trading. Price suddenly takes a jump up (or down). Understanding what a gap might mean in terms of future prices means looking at the volume associated with the gap and most importantly, what were the circumstances under which the gap occurred. Gaps occur between the close and next open of the market . A gap at the open may get filled during the day and trading opening gaps is a separate subject. Opening gaps that get filled could be the device of a specialist or market maker who intends to fade the open for a quick profit. What this article covers are those gaps in which there is no overlap with the entire OHLC bars between successive trading days. Day-traders typically close out all of their positions rather than be vulnerable to what might happen on the open of the next morning. Why do gaps occur? Companies have a habit of announcing their earnings after market close . The government often releases economic news before market open. There are some exceptions, such as Federal Reserve monetary policy changes, but much news is released while the market is closed, or at least after normal trading hours. Gaps can also occur because prices have risen above, or fallen below, investors comfort level, independent of any economic news. You may have heard that all gaps get filled . The more accurate statement is that most gaps get filled sooner or later, where later can be years. Sooner can be days. What matters is figuring out what type of gap has occurred and what it might portend in terms of support or resistance. As to whether a gap always get filled, ask yourself, %93if Microsoft had a common gap five years ago when it sold for a fraction of what it does today - do you expect that Microsoft will ever get down to the prices of say five years ago (check 3/13/96 gap) and fill the gap?%94 Some types of gaps will not be filled or only partially filled. There are five types of gaps: common, breakaway, runaway, exhaustion, and island reversals. (we'll see the last one in class next week) Common gaps are those that are seen within a previous price range, particularly within consolidations. Most importantly common gaps are not accompanied by an increase in volume . Common gaps say little about support and resistance. They can be nothing more than
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Gaps - Gaps Some are commonplace and mean little, while...

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