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Gaps have attracted the attention of market technicians from the earliest days of charting. They’re not merely conspicuous: they represent price jumps that could signal profitable trading opportunities. Until now, however, "folklore" about gap trading has been common, and tested, research-based knowledge virtually nonexistent. In Technical Analysis of Gaps, renowned technical analysis researchers Julie Dahlquist and Richard Bauer change all that. Drawing on 60 years of comprehensive data, they demonstrate how to sort "strategic" gaps from trivial ones, and successfully trade on gaps identified as significant. Building on work that recently earned them the Market Technicians Association’s 2011 Charles H. Dow Award for creativity and innovation in technical analysis, Dahlquist and Bauer offer specific gap-related trading tips for stocks, futures, and options. They consider a wide variety of market conditions, including gap size, volume and previous price movement, illuminating their findings with easy-to-understand diagrams. Coverage includes: understanding what gaps are and how they arise; recognizing windows on candlestick charts; identifying gaps with superior profit potential; combining gaps with other technical techniques for a more complete and effective analysis; and putting it all together with real trading strategies. For stock, commodity, and currency traders in the U.S. and worldwide, and for active individual investors seeking new ways to maximize returns.
About the Authors xii
Chapter 1 What Are Gaps? 1
Chapter 2 Windows on Candlestick Charts 17
Chapter 3 The Occurrence of Gaps 43
Chapter 4 How to Measure Returns 71
Chapter 5 Gaps and Previous Price Movement 107
Chapter 6 Gaps and Volume 121
Chapter 7 Relative Price of Gap Occurrence 139
Chapter 8 Gaps and the Market 159
Chapter 9 Closing the Gap 205
Chapter 10 Putting It All Together 219
Index 227