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Monday, October 08, 2007 5:48:27 PM
** Chart "Quick" Lesson: 5 Day Rule **
** Disclaimer: This is a personal rule I use. I know many would dispute it and debate it to the death, but I am NOT claiming this is "the only way". Through my experience, it has worked well for me (not 100% accurate, but what is?), but once again, this is in no way an 'official' type rule.
The 5 Day Rule deals with gaps. Particularly "gap ups" (where the price opens higher than the previous day's close). I'm sure it could work with "gap downs", but I have never used it in that manner.
Many people "play the gaps", meaning they will wait for them to fill before entering a play. There is nothing wrong with that; however, through my experience, it has caused me to miss out on many plays. Do gaps fill? Yes. Do they always fill? NO!!!
My rule is simple... if there is a gap, give it ONE week to fill (5 trading days). If it does not fill, then FORGET ABOUT IT!
The psychology behind the rule is also very simple. Give the sellers and profit takers one week to sell/take profit. If they are "expecting more" out of the play, they will hold tight and not sell - gap does not fill.
If they are somehow "surprised" by the move, they will more than likely take profits because all of a sudden they're in the green (unexpectedly) - surprise = gap fill.
Simple as that. "Expecting" = no gap fill. "Surprised" = gap fill.
Too many people let gaps intimidate them, which causes them to miss out on plays. One stock I can speak from personal experience on (which also confirms my psychological standpoint) is DPDW (chart below as an example). There was a gap in late July that caused MANY people to miss the big run in September (a one month old gap was intimidating people). How do I know this? I read over and over again how people wanted to see if the gap would fill... well, that never happened, and look at the chart... BOOOOM... it is clear the shareholders are "expecting" good things from the company; therefore, when the stock does gap, they aren't surprised and are holding for higher highs (remember, "expecting" = no fill)...
Below are a few more examples of the '5 Day Rule' in action...
Remember, don't let gaps intimidate you... sure they fill once in awhile, but they can also leave you hanging out to dry if you "wait" for them to after time...
Questions? Requests for another "Quick" Chart Lesson? PM me and let me know...
** Disclaimer: This is a personal rule I use. I know many would dispute it and debate it to the death, but I am NOT claiming this is "the only way". Through my experience, it has worked well for me (not 100% accurate, but what is?), but once again, this is in no way an 'official' type rule.
The 5 Day Rule deals with gaps. Particularly "gap ups" (where the price opens higher than the previous day's close). I'm sure it could work with "gap downs", but I have never used it in that manner.
Many people "play the gaps", meaning they will wait for them to fill before entering a play. There is nothing wrong with that; however, through my experience, it has caused me to miss out on many plays. Do gaps fill? Yes. Do they always fill? NO!!!
My rule is simple... if there is a gap, give it ONE week to fill (5 trading days). If it does not fill, then FORGET ABOUT IT!
The psychology behind the rule is also very simple. Give the sellers and profit takers one week to sell/take profit. If they are "expecting more" out of the play, they will hold tight and not sell - gap does not fill.
If they are somehow "surprised" by the move, they will more than likely take profits because all of a sudden they're in the green (unexpectedly) - surprise = gap fill.
Simple as that. "Expecting" = no gap fill. "Surprised" = gap fill.
Too many people let gaps intimidate them, which causes them to miss out on plays. One stock I can speak from personal experience on (which also confirms my psychological standpoint) is DPDW (chart below as an example). There was a gap in late July that caused MANY people to miss the big run in September (a one month old gap was intimidating people). How do I know this? I read over and over again how people wanted to see if the gap would fill... well, that never happened, and look at the chart... BOOOOM... it is clear the shareholders are "expecting" good things from the company; therefore, when the stock does gap, they aren't surprised and are holding for higher highs (remember, "expecting" = no fill)...
Below are a few more examples of the '5 Day Rule' in action...
Remember, don't let gaps intimidate you... sure they fill once in awhile, but they can also leave you hanging out to dry if you "wait" for them to after time...
Questions? Requests for another "Quick" Chart Lesson? PM me and let me know...
Need an Annotated Chart? Stop by my board -- http://investorshub.advfn.com/boards/board.aspx?board_id=8765
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