Tuesday, September 24, 2019

Price Chart - GAPS - Walking down the 40 years memory lane

Early 1990s was a period of active knowledge seeking about chart analysis an alternative to classical textbook financial economic analysis. I went through the typical path of immersing in all the text materials I can get hold. Obviously believing all that I read as "TRUTH". As time progress I start to ponder all the knowledge in my head and questioned the concepts which I had accepted as the TRUTH.

A common adage that is frequently mentioned is "filling gaps" and one will start to look for historical gaps in hope that it will be filled NOW or potentially in the future.

How and why did gaps happen? IF the market trade 24h/365days, there will be no gaps. IF there is a significant hours or days of time break, it is more likely the price will either GAP up or DOWN when a significant news or report is released during the break time or recess. This is common in stocks, commodities, fx and futures markets. In the case of commodities or instruments that are traded on calendar months and different prices, gaps will happen when one contract month expires and is roll over to the next trading month more so if the are traded either at a premium or discount.

What may appear as GAPS on Daily charts will not appear on Weekly or Monthly charts. Even weekly chart gaps may not appear on monthly charts.

Some may even treat chart gaps as "Bullish or Bearish". I don't think it mean anything. If the market is going up, it will go up with or without gaps and vice-versa.

I rather focus on moving averages and trendlines which I feel is more reliable than some of the weird concept and ideas within the chart analysis field!

To conclude, I am a firm trend believer and a trend in motion will continue in that state until it has exhausted. Any intermediate detour will only be temporary before the climax point is reached.           

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