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Re: IAMLEGEND post# 8265

Wednesday, 02/01/2012 11:22:08 PM

Wednesday, February 01, 2012 11:22:08 PM

Post# of 83010

~~link back for previous lessons~~

A GAP is defined as a price level on a chart where no trading occurred. These can occur in all time frames but, for swing trading, we are mostly concerned with the daily chart.

A gap on a daily chart happens when the stock closes at one price but opens the following day at a different price. Why would this happen? This happens because buy or sell orders are placed before the open that cause the price to open higher or lower than the previous day's close.

Types Of Gaps

1.Breakaway Gaps - This type usually occurs after a consolidation or some other price pattern. A stock will be trading sideways and then all of sudden it will "gap away" from the price pattern.
2. Continuation Gaps - Sometimes called runaway gaps or measuring gaps, these occur during a strong advance in price.
3. Exhaustion Gaps - This type of gap occurs in the direction of the prevailing trend and represents the final surge of buying or selling interest before a major trend change.

Professional Vs. Amateur Gaps

When you are looking at gaps on a stock chart, the most important thing that you want to know is this:

Was this gap caused by the amateur traders buying or selling based on emotion?

Was this gap caused by the professional traders that do not make emotional decisions?

To figure this out you have to understand this one important concept first. Professional traders buy after a wave of selling has occurred. They sell after a wave of buying has occurred.

Amateur traders do the exact opposite! They see a stock advancing in price and are afraid that they will miss out on the move, so they pile in - just when the pro's are getting ready to sell.



* 20% Profit Rule
* Do your DD
* Follow the Charts-Trend
* Stop loss
* Buy at Support,Sell at Resistance
* Dont chase momentum stocks
* Control Fear & Greed