What Is Gap Up & gap down ?
Gap Up & Gap Down are sharp breaks in price; there is no any trading opportunity in between gaps. There are two kinds of gap in stocks price; gap up & gap down. in stock market gaps primarily occur over the day because it is the time Indian stock market closes.
Reason of gap up & gap down-
Gaps occur because of fundamental or technical factors. We can understand by this simple example – if a company’s earnings or performance are good or higher than expected, the company’s stock may gap up the next day.
If a company’s earnings or performance are not good or lower than expected, the company’s stock may gap down the next day.
“Gap Up” means the stock price opened Higher than it closed the day before.
“Gap Down” means the stock price opened Lower than it closed the day before.
Why are they important?
Gaps can give an idea of market sentiment or market direction. When a market gaps up, that means there was less or zero traders willing to sell at the levels of the gap. When a market gaps down, that means there was less or zero traders willing to buy at the levels of the gap.
To fill or not to fill
To fill – price has moved back to the pre gap level, and fills the gap.
Not to fill- price has moved to the same direction of gap & not fills the gap.
Myth: The Price Always Fills the Gap
MAJORITY OF TRADER’S BELIEF – THEY THINK THAT THE PRICE WILL ALWAYS FILL THE GAP, ALWAYS?
TECHNICALLY SPEAKING PRICE ALWAYS FILL THE GAP BUT THIS DOES NOT MEAN THAT THE GAP WILL BE FILLED IMMEDIATELY AS IT IS FORMED.GAP IS USUALLY FILLED BUT IT MIGHT TAKE OPPOSITE DIRECTION BEFORE IT HAPPENS. TRADERS NEED TO IDENTIFY FIRST WHICH GAPS ARE TRADABLE & WHICH ARE NOT?
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