Do Gaps Always Get Filled

JackR · Dec 7, 2005

Quote from guy2:

I track a daily raw gap play across the emini futures which looks at what you would make each month if you traded each and every gap and did not use stops.

What percentage of gaps filled the same day?

Do you track opening gaps and closures?

Jack

guy2 · Dec 7, 2005

Quote from JackR:

What percentage of gaps filled the same day?

Do you track opening gaps and closures?

Jack

Jack: I track the gaps on my Daily Notes page at the bottom.

All of the gap stuff I've done deals with gaps that close on the same day. The % of gaps that closed in the period that I studied (on ES):
Mon: 65%
Tue: 77%
Wed: 79%
Thu: 82%
Fri: 78%

I also update a monthly league table for the ES which shows by month and year. I was hoping to isolate a part of the year when gaps were more likely to close. For example, in the summer months when the market is more choppy I thought that there may be a higher probability that gap trading would be a better strategy. As you can see from the table, June and July are the only months that have always been profitable.

Hope that helps.

Pabst · Dec 7, 2005

Gaps are filled no more or less frequently then any other price point.

Wallace · Dec 7, 2005

I don't believe gaps are ever 'closed', rather they're an additional formation/pattern that may or may not have value to the trader. Noting how the price interacts with gaps they're an important formation for me, creating S/R levels and a 'vacuum' that on occasion 'causes' an acceleration of the price up or down through the gap.

http://www.moneytec.com/forums/showthread.php?t=14026&highlight=fun+gaps

murray t turtle · Dec 7, 2005

Quote from Investorsources:

From experience, do you find that Gaps almost always get filled at some point. Who cares if there is a gap to be filled.....what does it imply other than there is such a strong bevy of buyers or sellers so as to cause the gap? What is the significance of having to fill a gap? Is it just a self fullfilling prophecy or is there some technical reason for it to be filled.

==================
Sure they may be filled, but stronger the uptrend or downtrend;
& say gaps in the direction of trend,
the slower gaps may be filled.

Was looking a a favorite energy stock of mine today;
gaps from 1999, 2000... never have filled,
and its a strong uptrender.

Seen gaps on downtrending media stocks;
all year this year gaps have not filled

LoosenUp · Dec 7, 2005

Is everybody referring to the same types of gaps? What time frame charts are we talking here? I assume it is the gaps on the daily chart. Even so, there are 2 types here...the true gap where price opens outside of yesterday's range and the other type of gap..forgot the term..where todays open is different from yesterday's close but within yesterday's range.

guy2 · Dec 7, 2005

Quote from Pabst:

Gaps are filled no more or less frequently then any other price point.

I like your comment because (1) it provokes thought over the point and (2) is easy to test.

I haven't tested this but I hope to and you could easily test this using daily OHLC data:

Count the number of times a gap is filled versus the the same distance away from the gap (i.e. on the other side). If both prices are filled the same number of times then that statement is true.

What do you think?

guy2 · Dec 7, 2005

Quote from LoosenUp:

Is everybody referring to the same types of gaps? What time frame charts are we talking here? I assume it is the gaps on the daily chart. Even so, there are 2 types here...the true gap where price opens outside of yesterday's range and the other type of gap..forgot the term..where todays open is different from yesterday's close but within yesterday's range.

In the study that I did I classified those 2 types of gaps as:

gap = distance between today's open and yesterday's close
extreme gap = same as gap above but open is outside of yesterday's high/low.

stock777 · Dec 7, 2005

Whats a gap?

A price change without intervening price points.

Some of these gaps are not even real, as many shares change hands in the after hours session, and dont show up on daily charts.

You first have to understand what the gap means in order to have an opinion as to whether it will be 'filled' or not. Filled as most use it means retraced.

Well, lots of price points are 'revisited' or retraced, including gaps. Are gaps more likely than any other price 'range' to be retraced?

Have fun.

SteveD · Dec 8, 2005

I would add several observations:

1. Rule dates from NYSE only days. Specialist controlled pricing.
Trading started at 9:30 and closed at 4:00

2. As pointed out, there is basically 8am to 7pm trading.

3. Nasdaq market makers and ECNs move price all over the place. No continuity. Price moves up for 100 share order???

4. Also, spread is now 1 cent so takes a lot more price moves to "fill gap". With previous 1/8 spread did not take as many price points to fill gap.

Which, IMO, makes a gap more difficult to trade. I watch for pull back but get burned sometime

SteveD