lowtrade

[lowtrade]

Gap trading is like evaluating human nature. The phycology is emotion creates gaps in price from one days close, to the next days open. And emotion is self correcting. Thus once one sees emotion one should see correction. It just human nature.

In stocks, what happens is, the few drive price on emotion and after the emotion, the many bring the price back to previous true value. This few / many thing is why candle wicks don't count. As only the candle body shows the days majority sentiment. The wick spikes are the few again.

As for reliability statistics, I haven't found any. Only personal experience. I say 90% of common gaps fill quick. But this, like all trading, is a gray area. With different opinions from different people. I'm not aware of anyone which has historically researched years data to give accurate statics.

As for stifling the over all move. Your back into phycology again. As when the many take back price control, all should proceed as previous sentiment felt. Common gaps are just hic cups in the underlying trend or true value evaluation of the many. Both trend and chart patterns should continue after correction, unless that gap changed over all sentiment.

This is seen in non common gaps. Where it takes more time for the many to re-evaluate expectations using their personal analysis. Larger break away, exhaustion or run away gaps involve more then just some daily emotion. As they normally involve stronger prior trend or huge company news, which shocks the many. So some home work slows the correction process down.

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