Sellers want to max out their profit and may be hesitant to exit a position immediately. Fill the Gap A gap is defined as an unfilled space or interval. In this post I test the strategy on 20 Nasdaq stocks between 2008-2018. However, there usually isn’t much evidence to support those claims. Many bloggers have written about how good this strategy is. Gaps happen extremely quickly, but the gap filling process tends to happen much more slowly over time. The first step I will show you is what a gap is when it occurs with a stock, and then from that point it becomes very easy to learn about what a gap fill actually is. Filling the gap is a popular strategy where you buy a stock when it gaps down in the morning and then wait for it to fill the gap. At the same time, possible sellers in the $118 to $128 range are all of a sudden sitting on much larger profits than they had anticipating and are itching to pull the trigger and cash out. When a stock jumps from $118 to $128, possible buyers in the $118 to $128 range are immediately discouraged by the higher price. When a stock moves fluidly higher or lower, the buying and selling demand typically remains at or near equilibrium. However, in terms of market dynamics, a large, immediate jump in share price often creates a temporary imbalance in buyers and sellers. As the name suggests, Common Gaps are commonly found on a price chart and get filled within a few days or few weeks. At that point, previous resistance levels turn to support, and traders buy the stock on the bounce.įor traders who trade more on fundamentals than technicals, gap filling may not seem like an intuitive phenomenon. Gap fill traders often sell a stock after a large bullish gap is created, attempting to ride the stock back down until the gap is filled. They are just brief inconsistencies on an otherwise mostly stable stock. It is important to note that gaps can confirm a trend, signal its reversal, or sometimes do neither. A fill the gap stock is one giving a strong reversal signal that the gap failed. Experienced traders know these types of gaps tend to close over time before a bullish trend resumes. Gap-fill stocks can give investors healthy returns for savvy traders who correctly identify the gap type. The bigger the gap the stronger the signal whether it continues or reverses. Friday morning’s big move created a large gap in Disney’s chart between around $118 and $128.
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