>re: Please explain what is ment by the term "gap" as some of you are using it.
In this context, the term refers to a gap in the stock's price. Most commonly, this is a gap that happens from one day to another, although an inter-day gap is also possible (but unlikely). As an example, if the stock closes on one day at $70 per share, and opens the next day at $75 per share (most commonly because of some news that occured after closing, such as the release of earnings), then it would be said that there was a "gap" in the stock price. Gaps can also happen with the price headed down, of course. There are those who believe that, in general at least, "gaps must be filled". In this example, if the stock opened on the 2nd day at $75 and continued on to $80, $90, $100, they would believe that sooner or later the stock would (must ?) return to "fill the gap" by trading between $70 and $75.
Of course stocks go up and stocks go down, often creating small gaps as they go, and undoubtedly most gaps do indeed get filled, just because of the somewhat erratic nature of stock prices. Personally, however, I have a real problem with the concept that gaps "must" be filled, a view which some of these people seem to hold. In my view, gaps exist, fine; most will get filled by the random action of future stock prices, but there is no reason, as I see it, to believe that stock prices are influenced by the presence of gaps, or that there is any particular tendancy for them to get filled. |
