, 7 tweets, 1 min read Read on Twitter
1/n- Lets talk about gaps real quick considering my recent post on closing the CME gap. Gaps occur when there is a large S/D imbalance or major shift in the sentiment of traders/investors.
2/n- A gap at the beginning of a major trend reversal and a gap well after a trend has formed can be interpreted in completely different ways; one may be indicative of a high-volume bullish shift, the other being a sign of potential trend exhaustion.
3/n- Generally, the larger the gap the more likely you are to see continuation. Everyones favorite reference is that gaps need to fill, even I will share the occasional gap chart to propose this occurring.
4/n- If we think of assets that are popularly traded and invested in we are likely talking of assets that are drifting upwards over a long period of time, therefore any gaps down are likely to be covered at some point on moves up after,. i.e. this is survivorship bias
5/n- If we consider gaps that occur on high volume upwards that are not at the beginning of trends we can consider that these are outside of the normal SD of price behavior and therefore any reversion to the mean will cover this empty space.
6/6- Lastly, the gaps that are least likely to fill are gaps in an asset that occur at the beginning of major trend changes, i.e. gaps that occur in new bull market cycles, early on. Stat speaking, prices will trade at all points between an ATH&ATL, except for few occasions.
S/d is supply and demand, SD is standard deviation.
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