A Study On Gap-Ups and Gap-Downs

Dear fellow traders,

On analysing the gap-ups and gap-downs, from the month of October 2008 to May 2009, two gap-ups and two gap-downs were observed to have filled up the gaps upto February 2009.

But the gap-up in April 2009 [from 3030] and May 2009 [from 3472] are yet to be filled up.

At the rate in which the trend is going up, I want the learned & experienced traders in this great forum to suggest :

1. Whether these gap-ups will not be filled up at all and nifty will
be going to new highs ?

2. Or,on the other hand, if to be filled, will the nifty touch the
point from where the gap-up started, i.e., 3030 ?

Any theory on Gap-ups and Gap-downs may kindly be referred for everybody's understanding, please.

Yours in trading,
dayder.

My observations on Gaps.-

IMO, Market works in cycles.. not in a straight line. Generally majority of gaps get filled in due course. When will it be filled ? that is big question. Only the gaps
that are made at start of a major bull run, might remain unfilled (somewhere I read that Dow has unfilled gap somewhere around the level of 85 or 90 which is still not filled).
I don't think we are out of woods and major bull run is starting now (I might be wrong) so lets give some time to these gaps that u have observed.

Gaps do act is major support or resistance point. Generally the starting point of gap acts as important level. In that way, if start point is tested, it also results in filling up of gap.
When I am looking at longer timeframe chart, I will define a range rather then a signle numbre.
From that perspective, for me 3030 or 3000 (or rather 2975) will be a range to watch out for.

You can read about various types of gaps (Breakout, Continuation, Exhaustion etc) on the net or in any TA book. That is good for theory.
In practice, gaps are created because there is mismatch in demand and supply at that point (i.e. Gap up mean demand was much higher then supply). So whenever price revisits those
points, the demand /supply re-enters the market. Price action around gap zone helps us to understand demand/supply and hence possible market direction.

Happy Trading.