Historical Simulator Plug-in
In this example, I want to take you through and show you some Gaps. How to identify them, and what they're all about.
Gaps are really quite prevalent, you see them in almost every chart. There's basically three different kinds of gaps. There's the break-away gap, which is generally found at the top or the bottom of a- or excuse me, an exhaustion gap, which is generally found at the top or the bottom of a move.
There's a measuring or running gap, which is the kind of gap that kind of shoots up through the middle of a trend.
Then, there's a break away gap, which a market is maybe going up and then it kind of hesitates, and then it gaps, and breaks away, takes off. We're going to go through and identify these three kinds of gaps for you. There's another little, kind of a little saying out there in the industry, it's called: Gaps aware mean t to be filled. That means that if you see a gap, watch the market. It has a tendency to come back down and fill that gap and then go on. That's not always the case, and we'll see here in this example, where you'll see where that'll happen, and where it won't. But on occasion, keep that in mind, that gaps are meant to be filled. If a gap happens, look for the market to retrace, come down, fill that gap and then continue on in the direction it originally was going.
First of all I just to go through and identify some gaps. Here's one, right here- what would you call that one? I think we would call that one probably, that one would probably be more of a break-away gap. Because we have a nice little area of, you know, we have a nice little trend coming up here, in our Pork Belly Contract. It hesitates, goes sideways a little bit, then breaks away, and jumps up. So that would be considered a break away gap.
Then, right in here we have another little gap, this one here, again would be considered a break away gap. I would call that a break away, because we have this little area of hesitation right in here, before it gaps up again.
Then, this one down here would be considered, that might be considered a measuring gap, or a probably a break away- again, right in here.
Then right here, this would be a measuring gap. Measuring gap or running gap, of course is one where it just keeps right on going. It's a small one, but it's a- that would be considered probably a running gap.
Here's one.. well, we're not gapping right there, are we? We had a little tiny one, but we're jumping and going pretty fast. But here's a nice gap, right in there. This one would be a runaway, a running measuring gap.
Of course, right in here, this gap would be considered an exhaustion gap. Where the market comes down, it gaps then it sits and hesitates, then it has another gap as it goes the other direction.
Pork Belly's gaps a lot, it's a quite a volatile market. You'll find that you'll see a lot more gaps in volatile markets. Let's come over to Oats, notice that Oats traveled for a long time with no gaps. It traveled for a long time with no gaps, then suddenly got very volatile. Had a nice running gap, up in here. Measuring running gaps, right up through here. Then suddenly it had an exhaustion gap, right at this point here. Where it left this little top formation here, then gapped back down. So, the market ran up real fast, with a couple of measuring running gaps. It got tired, left an exhaustion point at the top then came back down. Then, we come across, and we had a couple more running gaps, right in here, I believe- nope, see, then we ran all the way, there's one little probably a little measuring gap, right there.
Let's go to Corn- Corn did a lot of basically the same thing. Let's see, here's a little running gap, here's another little running gap, right in here. But notice this big running gap, measuring gap, right there. Two of them, one nice big one there, and then this one of course leaves you with the exhaustion gap, where we've come running up real fast, we left the little top point, it got tired, gapped on, gapped back down, leaving that little point sitting up there all by itself. That's called the exhaustion gap. Where the market runs out of steam, leaves little points up there, and drops back down real hard.
Here's a nice little break away gap, right in here. Another little break away gap, and then Cocoa. Cocoa is another quite wild market. Lots of little running gaps, going in Cocoa. We see those, quite often. There's a nice little probably an exhaustion gap right there. We have a nice big gap, right here, probably more of a break away gap, because we hesitated just a little bit. Another little exhaustion gap up here on top. See that one, right there, where we left that hanging up there on top? Market ran quite quickly right there, there's a that's a measuring or a running gap. Look at this, look at this right there! We left one little pin right up there on top with a one day exhaustion gap. Here's another gap, right there. Probably a measuring running gap. So, just remember, as gaps move, you know if you're going in your favor, they're great. You know, a nice big jump like that, can be a nice jump in your favor, that's $300.00 jump right there. But if it's going against you, that's a bad place to have your order. If you know, if you have an order to stop you right out in that point, and the market comes down and gaps down, your order isn't filled where you wanted it to. It has a lot of slippage it moves all the way down to the first opportunity it has to fill, which possibly could be on the open. If from the distance, just looking at this market here, the close of that day to the open to close of that day, or the open of that day is $850.00. So you see, then you have a $300.00 gap in there, where markets can't be filled at all. So, that's quite a large gap. So, that's why it's very dangerous to trade these volatile markets, because they gap like this. It's difficult to get your orders executed when you want them to, so it's generally not recommended that new traders trade these volatile markets, they have a lot of gaps in them. Look more for markets that are a little bit more solid and have a lot less gaps. Notice Corn is one of those, Wheat is one of those. You see- there's not a lot of gaps. Not to say they don't, because all markets do but they don't as often have as many gaps. They don't get this volatile very often. So, there you go! Get to your charts, look through the gaps, look at which markets have a lot of gaps in them, try to avoid those markets and look at the markets that have a lot less gaps, those are the markets you want to be trading in.