The gap is filled...
dufferdon
to misc.invest.technical. A concept I have difficulty with is the
thought that gaps provide support and resistance and indicate
potential reversal areas.
I can conceptualize how peaks and troughs can provide support and
resistance. A whole bunch of people made a wrong decision by buying or
selling at these levels. When prices revisit the same level they see
it as a chance to get a second bite of the cherry and correct their
previous mistake.
But for the life of me I cannot see how an absence of buying or
selling would cause someone to say that this is the point at which
they should get in or get out. Unless, that is, they believe that
gaps are blessed with some mystical properties, like Fibonacci
numbers, that cause people to do strange and mystic things.
As you can see, I am also a Fibonacci sceptic. They imply too much
precision to me. Retracements of up to 50% look right to me. Much
more than that and I get rather nervous. To my eye, there's not a hell
of a lot of difference between 50 and either 37.5 or 62.5. BTW I
wonder what happened to Mr. 50% who built a whole trading methodology
on this number and used to post in the newsgroups.
On Wed, 11 Jul 2001 17:27:12 -0600, millstox <kissm...@hell.com>
wrote:
>Gary James <gjam...@OMITlycos.com> wrote:
>
>>There is a theory in technical analysis that all gaps must be filled.
>>There was an up gap on the Naz from 1946 to 2000 on about mid April .
>>
>>If this theory is true, then we filled that gap this morning and
>>should be able to move upward with a solid base from here.
>>
>>I don't know if I believe in technicals. But it is most interesting.
>>
>>Gary James
>
>The NASDAQ currently has 3 recent pending gaps, from most recent to
>least recent they are:
>
>4/17/2001, close at 1923, gap to 1995 (closed yesterday)
>4/10/2001, close at 1852, gap to 1884 (closest low 1868, pending)
>4/9/2001, close at 1745, gap to 1771 (pending)
>4/4/2001, close at 1638, gap to 1706 (closest low 1700, pending)
>
>There are different schools of thought on gaps. There are people who
>will tell you that gaps always get closed, and they could be right.
>
>There are also people who will tell you that some gaps never get
>closed, and unless the world has ended without anybody telling me,
>they are just talking because there is no way they can know that for a
>fact.
>
>The one thing about a gap up is that it indicates a sentiment that may
>have been expressed by a relative minority; once the price gaps
>people work from there, and those who buy at the open are often the
>ones most sure it's "to the moon Alice". Positive gaps represent a
>price range that nobody is really sure about because the stock never
>really traded up through it in the open market.
>
>What I have observed is that large gaps up get filled more than half
>the time; when they will be filled is very difficult to guess, and I
>suggest that although you keep in mind the "iffiness" of gap areas in
>terms of support, you avoid making the assumption that they will fill.
>
>The most recent NASDAQ gap has filled, and there are those who would
>have you believe this means it's "to the moon Alice". Believe what
>you believe, not what they believe.
Mr. Kevin Bantz
> Interesting discussion. I have taken the liberty of cross-posting it
> to misc.invest.technical. A concept I have difficulty with is the
> thought that gaps provide support and resistance and indicate
> potential reversal areas.
>
> I can conceptualize how peaks and troughs can provide support and
> resistance. A whole bunch of people made a wrong decision by buying or
> selling at these levels. When prices revisit the same level they see
> it as a chance to get a second bite of the cherry and correct their
> previous mistake.
>
> But for the life of me I cannot see how an absence of buying or
> selling would cause someone to say that this is the point at which
> they should get in or get out. Unless, that is, they believe that
> gaps are blessed with some mystical properties, like Fibonacci
> numbers, that cause people to do strange and mystic things.
http://www.mrci.com/howe.asp this kind of gives you a psychological idea,
think of limit open as that gap.
http://www.stockcharts.com/education/What/TradingStrategies/gapStrategies1.html
http://www.arec.umd.edu/Areces/Grain/Class/Section5/gaps.htm
http://www.nofearzone.com/gaps.asp
>
>
> As you can see, I am also a Fibonacci sceptic. They imply too much
> precision to me. Retracements of up to 50% look right to me. Much
> more than that and I get rather nervous. To my eye, there's not a hell
> of a lot of difference between 50 and either 37.5 or 62.5. BTW I
> wonder what happened to Mr. 50% who built a whole trading methodology
> on this number and used to post in the newsgroups.
You're on your own...
millstox
>Interesting discussion. I have taken the liberty of cross-posting it
>to misc.invest.technical.
It appears to me that the rythm of the current dance required that,
though some other source would have been supplied, or for that matter
may augment.
> A concept I have difficulty with is the
>thought that gaps provide support and resistance and indicate
>potential reversal areas.
I don't know that I'd consider them definite support/resistance areas,
more like thin-ice areas where iffy things may happen. I think it's
fairly safe to say that gaps aren't caused by a pressure between
buyers and sellers so much as overexcitement because of news or other
events good or bad.
> I can conceptualize how peaks and troughs can provide support and
>resistance. A whole bunch of people made a wrong decision by buying or
>selling at these levels.
And they know they made a wrong decsion because... what, because the
price went the "other" way on them? Or are you talking about
something more intrinsic?
> When prices revisit the same level they see
>it as a chance to get a second bite of the cherry and correct their
>previous mistake.
There are also psychological s/r areas, at least intraday; for example
over the last few days, DELL has been mulling things over at 20-cent
intervals. Just like you might not pay 20 for a shirt but 19.95
sounds a whole buck cheaper; advertisers found this out decades ago
and I assume it's not new news to you either.
>But for the life of me I cannot see how an absence of buying or
>selling would cause someone to say that this is the point at which
>they should get in or get out.
As for getting in (creating the gap), I think that's usually caused by
hot news either good or bad. In some cases the news might amount to
nothing more than a sizable population coming home to look at the EOD
charts and saying "bullshit!". As for getting out, I think we're
talking about fear, the idea that it "miraculously" gapped in one
direction so it can "miraculously" gap in the other direction.
> Unless, that is, they believe that
>gaps are blessed with some mystical properties, like Fibonacci
>numbers, that cause people to do strange and mystic things.
>
> As you can see, I am also a Fibonacci sceptic. They imply too much
>precision to me. Retracements of up to 50% look right to me. Much
>more than that and I get rather nervous. To my eye, there's not a hell
>of a lot of difference between 50 and either 37.5 or 62.5.
I agree with the "too much precision" sentiment. However I do think
it's natural for traders to mechanically take profit at specific
places such as 10%, 20%, 50% and the like. For example some might buy
a position and immediately set a GTC sell-limit for a 20% profit,
rather than using a moving stop.
> BTW I
>wonder what happened to Mr. 50% who built a whole trading methodology
>on this number and used to post in the newsgroups.
Don't remember anybody with that handle, it could easily have been
before my time.
dufferdon
wrote:
>dufferdon <duff...@whoknowswhere.com> wrote:
>
My difficulty is with the concept of gaps being probable reversal
points upon a subsequent retracement. e.g. a stock makes a run from
say 23 to 29 and there is a clear gap from say a close of 25.5 to an
open of 26.25. Some people look for the gap to provide support when
the stock pulls back from 29 and anticipate a resumption of the
uptrend once the gap is filled. For example Alan Farley relies on
this concept a lot in his book The Master Swing Trader, although he
looks for confirmation from other technical criteria such as Fibonacci
levels. The book is well worth a read BTW, but put plenty of time
aside to do it as it is dense with detail and not an easy to follow.
It is the psychological basis of prior gaps acting as support in this
manner that I cannot get my head around.
The reference KB directed me to concerning the Howe limit rule does
not really seem to address the same aspect of gap behaviour as far as
I can see.
millstox
>The NASDAQ currently has 3 recent pending gaps, from most recent to
>least recent they are:
>
>4/17/2001, close at 1923, gap to 1995 (closed yesterday)
>4/10/2001, close at 1852, gap to 1884 (closest low 1868, pending)
>4/9/2001, close at 1745, gap to 1771 (pending)
>4/4/2001, close at 1638, gap to 1706 (closest low 1700, pending)
Ain't that a pip, closed one day before yesterday, made a new one
today ;-) According to my amateur and totally half-assed thinking,
this puts us in line to try for the next one back, the 4/10/2001 gap
from 1852. Funny thing, I've been thinking around 1800 is where I'll
start going long instead of short, because I feel the market and the
economy are a bit stronger than they were when it fell through that
level, even though I expect visible signs of a weak economy to
continue until year-end.
In response to dufferdon's comment yesterday about why gaps are a good
place to jump out, I'll offer a thought. There was a conscious buying
decision below the gap. There was a conscious buying decision above
the gap. Both of these would tend to convert to support/resistance.
But there isn't really a buying decision IN the gap. The point here
is that if it falls through support above the gap, there's no more
known support until the bottom of the gap. There may be psychological
support in the middle, for example at even dollar boundaries. But one
thing you can count on is that the guys who bought below the gap are
going to want to protect their profits, the lower and more recently
they bought the more fragile their profits feel to them and the more
ready they'll be to bail with what they made. Likewise the larger the
gap the more ready they'll be to protect recent profits.
Just my opinion, I'm no technical analyst, just a half-assed chartist
who works primarily on the psychology behind the candles. I make no
claims of much of anything most times, though people like to read them
into my posts because I just state what I believe to be the truth
without citing sources and suchlike and apparently it comes out
sounding "authoritative"... LOL, I am indeed the world's greatest
authority on what I believe ;-)
Mr. Kevin Bantz
millstox
>It is the psychological basis of prior gaps acting as support in this
>manner that I cannot get my head around.
I addressed this in another post in this thread.