GAP FILL STRATEGY

JD and PDD were at the gapper's list but had a massive pullback and traded them to the short side. RIO trade was a good opening range breakdown but got me stopped out. Was not able to reenter the trade but was a mover today. It's Friday and as soon as the stocks went into consolidation, I stepped on the sideline. 

What is a Gap Fill?

Gaps are mainly temporary situations, and most of the time, they are ‘Filled.’ Filling here means the price is back to its pre-gap amount.

In a few cases, this occurs because the influx of buyers and sellers who flocked to the stock are rethinking their positions, or investors see an opportunity in the extreme price, and in the end, they cause the price to correct itself.

Gaps are also filled due to the presence of technical resistance. The existing support or resistance thresholds are no longer valid due to the sudden price change. This is often unsustainable, and the gap is filled.

The type of gap also determines whether it will be filled. Breakaways confirm the direction of the pricing trend and thus cannot be filled. However, exhaustion gaps are at the end of a pricing trend and are more likely to be filled.

Types of Gaps:

There are four distinct categories of gaps on stock price charts. The type of gap determines the trading strategy investors will take.

• Breakaway Gaps- When gaps occur at the end of a price pattern and signal the start of a new trend, it is called a Breakaway gap.
• Exhaustion Gaps- occur near the end of a price pattern and are usually the signal of the last attempt at reaching a new high or low.
• Continuation Gaps- Also known as runaway gaps, are found in the middle of a price pattern when investors have a sudden change in belief about the stock’s future direction.
• Common Gaps- These gaps do not fall into price patterns; they are formed because of normal trading activities.

To take advantage of a gap in the pricing of a stock, it is imperative that you correctly identify the gap and apply the appropriate trading strategy suited for it.

Small profit today and will get back at it on Monday.