From MrSwing.com

Trading the gap successfully
Larry Swing & Brian Tran - Nov 3, 2006

One way to watch whether or not the gap will be filled is volume. Lack of commitment after the gap shows the direction might not hold up. Without new players coming to strengthen to push the trend further, the gap will most likely to be filled. The chart below immediately after the big fat red bar (high volume bar in Equivolume chart), volume immediately dried up (note small thin bars). One bar after another, the prices did not pierce the gap bar's low, making the bears nervous and bulls more confident that the gap may fill today.

 

Professionals love fading gaps against inexperienced excited traders who trade based on news. Staying calm and trying to understand price action in charts can help decipher what may happen next. Volume is crucial in determining the gap action: reverse and fill or continue the original direction. Gaps provide one of the most reliable setups with price stop and targets already determined immediately after they are formed, establishing normally a very favorable risk/reward ratio.

 



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