On "gaps"

[tradewiz50]

Quote from jficquette:
Gaps with no news are the best to fade.

John

So true yet they are very rare....

 

[Trvlwanderer]

Trade.....good tool as well. the screen i referenced pulls all the statistics for each stock showing a "gapping" pattern, statistics for "up" or "down", percent filled, daily gap average etc. Good tool for those looking for gappers or wanting to verify past history. The usual suspects appear daily, but with an ongoing percentage change for fills and the direction of the gap.

 

[stock_trad3r]

The nasdaq gapped down today 7 points

This is VERY bullish because gap-downs often DO get filled more frequently than the gap ups if the overal trend is positive.

Now its green. Expect ANOTHER 1% rally

 

[IronFist]

I'm a noob on gaps, and I found this thread by searching.

XOM has not closed a gap for the last 5 days. It gaps up and goes higher, except for today where it gapped down, but it still didn't fill the gap.

http://finance.yahoo.com/q/bc?s=XOM&t=5d&l=on&z=m&q=l&c=

 

[piezoe]

The volume is very important in deciding whether to fade a gap or go with it.

 

[IronFist]

I hadn't considered that. Thanks.

I would assume that lower volume would mean the gap is more likely to close, and higher volume would mean the gap is more likely to go, right? Higher volume = more people agree with the new price = more likely to not go back to where it was?

 

[Raystonn]

Higher volume means a larger chance of a reversal, and thus a gap closure. It signifies greater resistance to a continuation of the gap's trend.

-Raystonn

 

[Bearbelly]

I just read Carters Mastering the Trade and he says that high premarket volume usually means the gap will not fill. Was not the case today.

 

[Bitstream]

Quote from Bearbelly:

I just read Carters Mastering the Trade and he says that high premarket volume usually means the gap will not fill. Was not the case today.

that's usually true. more important than volume is trade rate, there's a subtle difference.

 

[jts]

In my experience, trading the assumption that a gap will be filled, or the opposite, are both profitable trading strategies (certainly for earnings gaps). The key is to consistently trade one way, either long or short, to profit. Personally I trade NYSE stocks long (assuming a gap won't be filled), NASDAQ short (assuming gap will be filled). Both work well, however there are times where there are a string of losses that have to be traded through. Consistency of approach - the market never stays the same and the good times do return (often when you least expect them to).