![]() ![]() If a gap is not closed by the next minor reaction, there is a high chance it will be covered by the next Intermediate Retracement, if it still fails, then surely by the next major swing in the opposite trend. Hope you can conclude before my next sentence. Then it stays there and comes back slowly to 55. Now suppose X continues to climb and reaches 60. On the next day, it opens at 56 and keeps moving up. Suppose X moves up from 50 to 51,52,53,54, and closes one day at top of its range for that day, at 55. There is a common superstition that “ a gap must be closed.” It is further molded into “If space isn’t filled in three days, it will be filled in three weeks, and if it isn’t filled in three weeks, it will be filled in three months, etc.”ĭo you know what is meant by “Closing” or “Covering” a Gap? If not, I will explain you. Since, the inception of technical analysis, these “holes” have always been in the limelight of the chartist.Īlso Read : Mastering Trading Psychology and Money Management ![]() As there is an idiom “ try to read between the lines”, likewise if you read the breakup from price continuity you will find that something important has happened to the fundamentals or the psychology of the crowd that has triggered this market movement. After all, to a chartist price is supreme. Gaps can provide clues about the price movement. The broader the time horizon the lower will be its frequency of occurrence. You may argue on its frequency, yes, it is less frequent than daily gaps. If we look at a broader picture, say a weekly chart, then it’s necessary at any time in a week the lowest price recorded will be higher than the highest recorded during any day of the previous week. The fundamental reason behind a gap theory is a sudden imbalance of buy or sell orders. Hence, once it gets plotted, in spite of attention deficit disorder we will be able to see, that they will not overlap or touch the same horizontal level on the chart, a gap will separate them from each other. To plot the ranges of any such two days, elementary mathematics is also not required. It is produced when on a particular day a certain stock at its lowest price is traded higher, compared to its highest price at which it was traded on a preceding day. You and I being visually perfect can find many such areas or spaces on the chart. It is the unfilled space or area in the chart. In layman’s terms, the gap represents a price range at which (at the time it occurred) no shares changed hands. In the language of chartists, a break from continuity is termed as “Gap” and here comes the use of Gap theory, a significant tool for technical analysis. Believe me, you are at the right place to understand it. Common gaps normally occur in calm and quiet markets, rather trendless markets.ĭo you want to take a break from continuity? Thanks for nodding your head.Genuine or valid gaps occur when the market skips a price level. Remember that not all gaps are genuine, some are phony as well.Gaps can provide clues about the price movement.In layman’s terms, gap represents a price range at which (at the time it occurred) no shares changed hands.A gap is produced when on a particular day a certain stock at its lowest price is traded higher, compared to its highest price at which it was traded on a preceding day.
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