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Strategies & Market Trends : Market Gems:Stocks w/Strong Earnings and High Tech. Rank
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To: Instock who wrote (11672)7/18/1998 11:17:00 PM
From: Nazbuster  Read Replies (2) of 120523
 
GAPS usually get filled, or VERY close to it.

Instock, CAREFUL! I'm a TA novice, but I have learned that there are four kinds of gaps. [Elder, Trading for a Living]: Common, Continuation, Breakaway and Exhaustion. All GAPS are not equal.

According to Elder:

Common are rapidly closed and usually occur in quiet, trendless markts.

Breakaway gaps occur when prices leap out of a congestion zone on heavy volume and start a new trend. They can remain open for weeks, months or years. The longer the prior range, the longer the subsequent trend. Breakaways have high volume which continues for several days.

Continuation gaps are found in the middle of a powerful trend. It can help estimate how far the trend will go. Volume should be at least 50% of the prior few days. If prices don't reach new highs (or lows) for several days after a gap, you may have an exhaustion gap.

Exhaustion gaps are not followed by new highs during uptrends or lows during downtrends. They are not fully identified until prices reverse and close the gap. They are often followed by violent reversals.

Elder also talks about an Island Reversal: a continuation gap followed by a breakaway gap in the opposite direction after a period of compact trading following the continuation gap. Good reversal indicator.
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