Trading GAPs; what you should know and how you can profit
you have seen these weird and seducing gaps in the charts of DJI, S&P or Bitcoin; and you probably you have heard things about them. the most famous one which I believe can make big losses in your account, is this: the chart always fills the gap.
Is that correct? Absolutely NOT! why so serious and strong?! because you should wipe this out of your mind to avoid losses.
But is that term completely false? well, no! gaps mostly will be filled once, but it's a matter of time and you know in trading time matters a lot! if you stay in a losing trend waiting for a small gap to fill, you might ended up getting liquidated.
for the right side of this term, you should find out if the structure of an uptrend/downtrend to fill the gap, is prepared and all there.
let's get deeper. Gaps are areas on a chart where the price of a stock (or another financial instrument) moves sharply up or down, with little or no trading in between. As a result, the asset's chart shows a gap in the normal price pattern. The enterprising trader can interpret and exploit these gaps for profit.
Gaps are two kinds of gap down and gap up. when the opening price of new candle in a time frame is below the closing price of the previous candle, it is called gap down and vice versa.
how we can profit if we can't say 100% they will be filled?
all gaps are not equal! Gap downs have a higher probability of filling than gap ups. since the gap downs can be signs of "get me out mentality" aka FUD. when the majority are selling, you may want to have a long position and enjoy the money flow from the herd behavior.
one more thing to mention: gaps on company stocks may have strong fundamental reasons behind them which comparing bitcoin or indexes like DJI, S&P etc have more probability of never filling back.
So be cautious on company stocks which might be influenced by single strong reason in price change.
I have posted this on my Publish account. please check it here