Gaps: Video 11 A, B, C & D Flashcards
Define Gap
Any space between current price and support or resistance. For example: High, Low, open or Close (H, L, O, C) of any bar. Moving averages. Trend Lines, Trend Channel Lines. Can be very minor, yet the gap is important.
Some Gap examples…
Close between close of highs of prior bars Gap between low and prior high Gap between low and moving average Gap between open and close of prior bar Exhaustion gaps since it Breakout (BO) test of signal bar
True or False: Gaps on daily charts of stocks are especially common in TR’s, and usually meaningless in TR’s, just like any other reversal or breakout.
True
Define Breakaway Gap
A Gap early in trend is a Breakaway gap. Usually only noticeable in hindsight.
Define Island Top
A Gap up followed by a Gap down. Can lead to a reversal down.
Define Island Bottom
Island Bottom is a gap down followed by a gap up. Can lead to reversal up. It’s simply a reversal up.
True or False: Since most Island Bottom and tops fail, most islands do not lead to reversals
True
True or False: When you see a move up, the get tested, it’s probably going to reach the measured move target
True
Need to watch 11A again on Gaps.
Every Bull Trend bar is a gap
True: You have to wonder if it’s an exhaustive end to a trend instead of a measuring gap and start of a new gap up.
True or False: An exhaustive sell climax does not mean a reversal to a bull Trend. Most of the time it means conversion into a trading range. It means that the bears are exhausted will stop selling so aggressively and it will stop going down.
True
True or False: the first time something happens, it usually fails. The first time bear get a Gap Bar under the moving average, it usually fails.
True. The odd are the reversal will fail and the trend will resume.
True or False: Usually when you get gap bear bars late in a bull trend (20+ bars), you get an attempt at a major trend reversal after the bull trend resumes.
True: it usually leads to a final rally before correction attempt. 40% of major trend reversals succeed.
Bull Trend going on for about 20 bars. It finally touched the moving average. It’s a 20 gap touch buy setup. Is this positive for bulls?
Yes: There are usually bull scalpers looking for at least a test of the prior high.
Need to watch 11b Gap video again
How to look for micro-gaps
For every Trend Bar:
Look at the bar before and bar after
If they do not overlap, there is a Gap
Odd of follow-through are greater
Gaps: when the bull resumes after a PB from BO, without pulling back below the BO point (Bears could not close the Gap), bulls buy more, the bears wait yo sell. This mean….
That there are usually many more bars left in the trend.
When one side (Bulls/Bears) are not able to keep gaps open on proceeding candles….
Then they are losing control, and counter prices are likely
If bar opens above or below close of prior bar, it is a ….
Gap Open Bar
Need to watch Video 11C again on Gaps. A lot of nuances to learn.
In a Bull small pullback trend days, when the tails overlap, but the bodies don’t overlap, it is a sign of …
Strong Buying. The odds are the strong bull trend will continue.
If you have a bull trend bar, you look at the low of the bar afterwards and the high of the bar before. If they do not overlap, we have a…
Micro-Gap. A sign of buying pressure. Chances are the market will go higher.
A Gap Open Bar: If the open of a bar is above the close of he prior bar, it’s a …
Gap-Up open bar. if the open of the bar is below the close of the prior bar, it’s a Gap-Down Open bar
Whenever a channel is extremely tight, and pullbacks are small and brief, even if you get an exhaustion bar, it is most likely to lead to…
a measured move down than it is to a reversal.
Gaps in trading ranges have no value. They are meaningless and has no predictive value.
A Gap in the middle of a Trading range is often a:
Measuring Gap.
A Gap at the end of a trend is an:
Exhaustion Gap
The last move before a trend ends.
Define Island Bottom
Gap down and gap up
You want the gaps to be at the same level
Can lead to a reversal
For charts that have Gaps, every Island Reversal is simply a reversal, and has no other special significance.
Most of the reversals fail. So these Island Bottoms may reverse, but soon fail.
He doesn’t explain measuring gaps well….or Gaps. But in this photo, he is saying a trend bar is a gap, and because this green bar didn’t reverse as a double top, that it is a measuring gap. (I really wish he explained things better)
So a trend bar is a gap. The market is telling him that it wants to go higher. (So just because there is a bar, doesn’t mean it’s not a gap. Okay)
A Breakout Bar/Gap Bar has a higher probability of leading to a trend up, if it closes above a lot of resistance. (For example, closing above a lot of prior highs)
Also look at Gaps under/over Trend Lines
Okay, so this gap between the pullback and Measuring Gap can be the measured move.
Bear Measuring Gap: So again, the middle of the gap between pullbacks can be the measured move.
So apparently, an Exhaustion Gap is a gap at the end of a measured move.
When a gap forms late in a trend after 10-20 bars, it can either be a:
Measuring Gap or
Exhaustion Gap
A Triangle after 40 bars above the Moving Average becomes the final Bull Flag and reverses. Then either enters a trading range or swings down. Then a failed breakout above the triangle (As shown)
2nd Leg Traps are discussed in Trading Ranges videos.
2nd Leg Traps in a trading range is: You have a move up, then a pullback, and a second stronger leg up that looks like a breakout that looks like the start of a new trend. But it’s still in a trading range and traps bulls into buying high.
So he’s saying the gap is a the low of the pullback and the high of the Breakout point.
Making this a Breakout Pullback Gap
Here is an example of an exhaustion gap bar. This has a longer upper tail with lack of follow through
In this bear Exhaustion Gap, Al illustrates the bulls filling the gap
Here after the exhaustion gap, if the bears can get a big bar follow through then it could go for a measured move down.
if the market is rallying and forming gaps between the tails, it increases the chances that the market will continue higher.
For Gaps, look at the High and Low of the bar before and after.
If they do not overlap, there is a gap.
This makes the odds of follow through better.
Here’s an example of a Body Gap: Bars (tails) Overlap, but bodies do not.
Also called a negative Gap. ( No as reliable as an Open gap)
Another sign of Body Gap strength. You will see these with trends.
Here, in a Small Pullback Bull Trend
Gaps often lead to trends
Gaps: Can lead to a Big Move
Here, bear gaps staying open, even if minor gap, makes lower prices likely.
If you have a trend that doesn’t have a lot of strong bars, but you’re getting gaps, then that could be the sign of a strong trend.
A Late Big Bar gap in a trend is usually an exhaustion gap, but sometimes becomes a measuring gap, especially when in a Tight Bear Channel as shown.
With these Series of gaps: Only Trade with Trend as long as Pullbacks create Gaps
When Gaps close, expect a Trading range Soon.
Bull Scalpers will begin to trade against the trend.
Stairs: When a Pullback goes above the Breakout Point
You have weaker bears and stronger bulls
It closes the Gap.
If Bulls are making money in a Bear Trend, there’s something wrong with the bear trend.
So this is on Video 11D about 14:06 min.
I still don’t understand these “high” bars and what they mean and how this even relates to this chart and how it even gives an advantage,
