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Baidu, Inc. Message Board

  • selsunblu selsunblu Oct 22, 2010 7:51 PM Flag

    About gaps...


    Gaps ARE usually filled... but not because they have a magical power to pull prices back to 'cover' them. The reason they usually DO fill is because stock prices have enough built-in volatility that the natural fluctuations usually take prices back to a level where they do 'fill'.

    First, understand that the ONLY gaps you will see on a chart are those that take place overnight. Intra-day gaps just make long candles that show no 'gap' on the chart. These intra-day 'gaps' happen all the time. So, there are probably hundreds of gaps on a chart we NEVER EVEN SEE because they did not occur between the close and the open.

    Second, some gaps that are BREAKOUTS from consolidation patterns can almost be counted on to 'fill' as these breakouts usually DO have a pull back sufficient to cover the gap. However, after the breakout and pullback have happened there are gaps that may not be filled for years... if ever. In other words, when a breakout from a consolidation happens there us a lot of investor interest in that breakout since the consolidation represents a large number of shares that have traded in a fairly narrow range. After the breakout, those shares will almost always take profits until the price falls back to the pattern boundary. After the selling pressure has been relieved in that pullback action the price is free to gap up without the overhead of supply that will drive it back down to fill again.

    BTW, if all gaps HAVE to get filled then short the Nasdaq to death. There is a gap in the 50's (56 I think) that never filled.

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