To: The Perfect Hedge who wrote (384 ) 2/26/1998 10:46:00 PM From: ftth Read Replies (2) | Respond to
It's a myth based laziness (as most trading myths are). It's the old, "Hey, I saw it happen twice, therefore it must happen always." As we all know, there's no such thing as a "sure thing" in technical analysis. Gaps are no exception. As a generalization, most gaps are eventually filled, but this can take weeks, months, or even years. In other words, a trading strategy should not be based on filling a gap. Since there are many types of gaps, naturally certain types of gaps are more likely to be filled than others. Breakaway gaps (at the beginning of a move out of a pattern) are least likely to be filled simply because they happen at the beginning of the move and therefore require more of a retracement (to fill them) than a gap that happens toward the end of a move. There's also continuation gaps (or measuring gaps) which are a specific subset of runaway gaps. These both happen during a sharp advance. Continuation gaps are just runaway gaps that have some geometric significance (like they occurred at the 25%, 50%, and 75% points in the move for example). An exhaustion gap, which occurs in the final phases of a move , is the most likely to be filled simply because it is at the top of the current move. BUT, if the stock consolidates at this local gap, then rises again, even an exhaustion gap can go unfilled.any price at which it once traded--gap or not." Also, the intraday gap, which doesn't show up on a daily graph, is sometimes more significant than the daily price gap, but it's hard to attach any type of significance to this statement because you generally don't have the data available to go back and look for this.
