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Pastimes : ASK Vendit Off Topic Questions -- Ignore unavailable to you. Want to Upgrade?

To: Carolyn who wrote (11757)	4/24/2000 7:37:00 PM
From: Vendit™	Read Replies (2) \| Respond to of 19374

Re Gaps: I'd like to ask a question of anyone that has never been satisfactorily answered (for me, anyway): why do gaps have to be filled? I hope Fred doesn't mind me answering or at least attempting to answer your question concerning gaps which was directed to him nor am I sure I can satisfactorily answer this question because it's a broad answer which I will attempt to condense with minimal confusion but I want to give it a shot. A price gap is when you see air or a blank space between the candle top of one day vs the candle bottom of the very next day. This air or space is referred to as a gap. A gap is generally caused from the retail demand made on a stock or index being much greater than the existing supply available to meet this demand. The sudden demand is usually caused by some BIG breaking news event such as a stock split being announced, buy-out or other similar sudden and unexpected event which is deemed to be extremely positive which drive demand for the issue which exceeds the supply. We all know when thinking back on these kinds of news and other events which drive stocks up will sooner or later wear off and be forgotten and demand will eventually dry up thus causing a stock to top as earlier buyers begin to book profits. As profits are booked the supply on the open market grows larger than the demand which causes shares to become discounted more and more each day as others either book profits or try to preserve capital via stop loss orders kicking in which induces more selling. OK........the above scenario is a logical series of events which can be expected to happen each time a stock gaps up. IE it is an expected event that the stock which gapped will fall on profit taking eventually. Thus gaps tend to get filled as the supply and demand equalize. So just as people like me who trade technical MACD or Stochastic signals on the belief these signals work there exists another crown who trade gaps. They watch for gaps to happen like the one on QCOM and AOL or a host of other stocks. Near the day that these gaps happen these same traders place GTC buy orders at or just above these gap levels. Call it a self fulfilling prophecy if you like. These orders that sit there waiting at the gap also cause the very predictable bounce once a gap has been filled. I hope this helps. Reid