15 - TYPES OF GAP

Types of gaps:
1) common gap
2) break away gap
3) run away gap
4) exhaustion gap


Common Gap
Characteristics:
-is not supported by high volume.
-the gap is closed very soon, around 1 week.

Fig. 29

Break Away Gap

Break Away Gap UpCharacteristics:
-is supported by high volume.
-indicates bullish.
-usually the gap is not closed.
-usually the gap penetrate importance level.

fig. 30

Break Away Gap Down

Characteristics:

-is supported by high volume.

-indicates bearish.

-usually the gap is not closed.

-usually the gap penetrate importance level.

fig. 31

Run Away Gap


Run Away Gap Up

Characteristics:

-is supported by high volume.

-indicates bullish.

-basically, it begins with a trend.

-it indicates more intensity on the trend.

Run Away Gap Down

Characteristics:

-is supported by high volume.

-indicates bearish.

-basically, it begins with a trend.

-it indicates more intensity on the trend.

Fig. 32

Exhaustion Gap
The gap is exhausted usually after a long rally or near the top of a trend.

Fig. 33

Examples:

Fig. 34 Common Gap

Fig. 35 Exhaustion Gap

Fig. 36 Break Away Gap

Fig. 37 Run Away Gap

14 - GAP

What Does Gap Mean?
A break between prices on a chart that occurs when the price of a stock makes a sharp move up or down with no trading occurring in between. Gaps can be created by factors such as regular buying or selling pressure, earnings announcements, a change in an analyst's outlook or any other type of news release. (investopedia)

fig. 26A

How can we tell if the gap was closed?
See fig. 26B.

fig. 26B

Another example:

Fig. 27A

Fig. 27B

Another example:

Fig. 28A

Fig. 28B

In the next chapter, we will discuss type of gaps.

13 - VOLUME

Volume is also important indicator besides price.
Volume indicates transaction that is happening during trading hour.
With volume, we can also determine the intensity of the stocks.


Basically, volume is recorded in bar in chart or we call it volume bar.
In chart, it is located below the price.


For example:

Fig. 25A

Fig. 25B

High volume bar means high interest of investors.

Low volume bar means low interest of investors.

High volume during trading day doesn't means more buyer than seller.

This is totally wrong.

Even though the volume is high during trading day, buyers and sellers always equal.

In addition, volume indicates the liquidity of one stock.

In the US market, one stock is liquid if the average daily transaction at least 500.000 shares.

What if we buy a stock that is not liquid?

We will find it hard to sell the stock because of the less interest of the buyers.

In this case, we see from the spread of bid and ask.

Example of the not liquid stock (Fig. 25C):

Fig. 25C

Compare it with this liquid stock (Fig. 25D):

Fig. 25D

Here's the relationship between price and volume:

1) price up & volume up = bullish

2) price up & volume down = bearish

3) price down & volume down = bullish

4) price down & volume up = bearish

Another relationship of price and volume:

If volume high, but the price is just going sideways, this indicates accumulation or distribution.

12 - MORE ON TRENDLINE

Trendline can be re-drawn.

See the charts below, they are the step by step trendlines re-drawn.

Fig. 23 is an example for uptrend.

fig. 23A

fig. 23B

fig. 23C

fig. 23D

Fig. 24 is an example for downtrend.

fig. 24A

fig. 24B

fig. 24C

fig. 24D

11 - FALSE BREAKOUT (WHIPSAW)

False breakout or whipsaw means a condition of price movement through an identified level of support or resistance that does not have enough momentum to maintain its direction. Since the validity of the breakout (or breakdown) is compromised, many traders close their positions and the price fails to make the sharp move that many were expecting. 


A failed break is also commonly referred to as a "false breakout". (from investopedia)

fig. 21

fig. 22

10 - PSYCHOLOGICAL LEVEL

Pyschological level is a level that has rounded off numbers. For example, 10, 20, 50, 100, 250, 500, 1000, 10000 and so on.


Sometimes it is called support psychological level or resistance psychological level.

fig. 19

fig. 20

Tips: It is better to buy above psychological level a little bit because the bid volume at psychological level usually very excessive. So, it is hard to get the stock at that level. On the other hand, it is better to sell below psychological level a little bit because the offer volume at psychological level usually very excessive. So, it is hard to sell the stock at that level.

9 - PULLBACK (RETRACE)

After strong a stock going up or down for some days, basically stock will fall back.
That condition is called pullback or retrace.


So, pullback or retrace means a falling back of a price from its high or low.

fig. 16

More examples on the stock chart:

fig. 17

fig. 18