Gaps are curious events.
Is the gap a sign of weakness or a sign of strength?
Any idea how to decide?
What are the odds to fill or partially fill the gap?
As a trader we never know for sure whereÂ the priceÂ is going, but we can play the odds if we are aware of the advantage that exists.
Gaps occur frequently, so we have to have strategies that give us a methodology to handle them when they happen.
The trapped traders who assumed the overnight risk will be experiencing strong emotions. They will be looking to break even or to minimize their losses. If it is a gap lower, for example, then there is “overhead supply” as traders are waiting to exit as soon as they can to get out of the trap. This usually causes consolidations as the constant selling exerts downward pressure on the market after each bounce.
There are many students of the market who have classified the types of gaps that occur and discuss ways to measure the projected targets.
Since our system projected today’s overnightÂ low as the potential low of the day, the odds favored playing long for the gap fill at the open.Â
Great trade if you took it.