There's also a lot of other guildlines to consider about
gaps
how overbought and oversold is the market
Gap trading: here's a few guildlines:
1. see what kind of gap it is. For example, if the market
is in a downtrend and gaps strongly over the downtrend line, or if
the market is in an uptrend and gaps below the trendline, generally
those are breakaway gaps and not filled right away. So
basically, if a gap takes out a trendline resistance or support,
take notice.
2. Gauge how overbought or oversold the market is: For example,
if the market has been trending down and is way oversold, if the
market gaps down many times these are exhaustion gaps or fake out
gaps and I would avoid shorting them, in fact you could buy
them. The same is true when the market is way overbought, if
it gaps up, there is a higher percent chance for that gap to fill
and sell off.
3. If the market is sort of neutral, then morning gaps can
go either way, 50:50, however many times they are filled.
4. use a 15 min gap rule, do a blog search on this, it has
been posted many times the rules for it.
keith, I added a comment and
example of the 15 min gap rule guild line to the
post
see how the market holds up the
1st 15 - 20 min i.e.
Draw 2 lines; one at the lows and
one at the highs of the 1st 15 - 20 min. If the market can stay
above the 15 min high candle bar, the it is considered positive and
the gap could possibly hold up for the day , however if the market
falls below the 15 min low, then the likelihood of the gap fading
increases greatly. Realize that this is just a technique only
and doesn't work all the time!
here's an example, the 7/21 EMA
crossover is not part the gap rule, they were simply on the
chart
But again,
also gauge how overbought or oversold the market is per
my comments above in the sticky and are you gapping up over a
trendline or to resistance etc
gaps - some guidelines
Posted by matt on 3rd of Sep 2010 at 09:19 am
There's also a lot of other guildlines to consider about gaps
how overbought and oversold is the market
Gap trading: here's a few guildlines:
1. see what kind of gap it is. For example, if the market is in a downtrend and gaps strongly over the downtrend line, or if the market is in an uptrend and gaps below the trendline, generally those are breakaway gaps and not filled right away. So basically, if a gap takes out a trendline resistance or support, take notice.
2. Gauge how overbought or oversold the market is: For example, if the market has been trending down and is way oversold, if the market gaps down many times these are exhaustion gaps or fake out gaps and I would avoid shorting them, in fact you could buy them. The same is true when the market is way overbought, if it gaps up, there is a higher percent chance for that gap to fill and sell off.
3. If the market is sort of neutral, then morning gaps can go either way, 50:50, however many times they are filled.
4. use a 15 min gap rule, do a blog search on this, it has been posted many times the rules for it.
gap example.png
Great post Matt, thanks!
Posted by keithbob on 3rd of Sep 2010 at 09:25 am
Great post Matt, thanks!
keith, I added a comment
Posted by matt on 3rd of Sep 2010 at 09:27 am
keith, I added a comment and example of the 15 min gap rule guild line to the post
see how the market holds up the 1st 15 - 20 min i.e.
Draw 2 lines; one at the lows and one at the highs of the 1st 15 - 20 min. If the market can stay above the 15 min high candle bar, the it is considered positive and the gap could possibly hold up for the day , however if the market falls below the 15 min low, then the likelihood of the gap fading increases greatly. Realize that this is just a technique only and doesn't work all the time!
here's an example, the 7/21 EMA crossover is not part the gap rule, they were simply on the chart
gap example.png
But again, also gauge how overbought or oversold the market is per my comments above in the sticky and are you gapping up over a trendline or to resistance etc
Gapless vs Simple 15min gap rules
Posted by kbgupta on 3rd of Sep 2010 at 09:34 am
Hi Matt,
Do you have an opinion about sensitivity of the simple 15 min rule vs your previous description of gapless PSAR and EMA analysis?
It appears to be another
Posted by cspirit on 3rd of Sep 2010 at 09:23 am
It appears to be another professional gap up today ...