Few doubts on gaps (up/down)

xsis

Active Member
#1
dear traders

i had few doubts on gaps (up/down). kindly help me in getting them cleared!

  1. gaps are calculated on what - previous close or last traded price?
  2. when gaps are referred, are they referred on DAILY time frame. if not then, till what lower time frame gaps are valid/applicable? for example, if the gap has been filled on daily TF but not on intraday basis, whether it wud be counted? i mean, if the stock in intra day goes from 100 to 101 and creates a gap up and closes on 105. next day it opens at 110 but fills the gap till 105. whether this wud be a valid gap filling as it was done on the daily time frame or it has to also fill till 100?

    quite confusing or only am i getting confused:D
 

jagankris

Well-Known Member
#3
dear traders

i had few doubts on gaps (up/down). kindly help me in getting them cleared!

  1. gaps are calculated on what - previous close or last traded price?
  2. when gaps are referred, are they referred on DAILY time frame. if not then, till what lower time frame gaps are valid/applicable? for example, if the gap has been filled on daily TF but not on intraday basis, whether it wud be counted? i mean, if the stock in intra day goes from 100 to 101 and creates a gap up and closes on 105. next day it opens at 110 but fills the gap till 105. whether this wud be a valid gap filling as it was done on the daily time frame or it has to also fill till 100?

    quite confusing or only am i getting confused:D
If price jumps from one price to another with out any trades in between it is referred as a gap.
Gaps exists in all time frames.It could be intraday or daily even weekly(only once).
Gaps indicate significant bullish or bearish sentiment.
Gaps could be left unfilled for quite longer period of time.
Why do you believe that a gap created necessarily has to be filled ?
 

boarders

Well-Known Member
#4
gaps value is calculated as difference between previous close and present open prices.
in daily TF the gap if present is calculated - day open price minus previous day close price, which if negative value then gap down and positive value then gap up.
in case of intraday time frames then use running candle open and previous candle close
 

xsis

Active Member
#5
thks boarders! ur take on the example given..

for example, if the gap has been filled on daily TF but not on intraday basis, whether it wud be counted? i mean, if the stock in intra day goes from 100 to 101 and creates a gap up and closes on 105. next day it opens at 110 but fills the gap till 105. whether this wud be a valid gap filling as it was done on the daily time frame or it has to also fill till 100?[/LIST]
 

boarders

Well-Known Member
#6
in daily tf you have to calculate the gap on daily basis and then the chances of filling depends on the percentage of the gap. for example if the gap is equal to or more than 1
percent then chances of filling 100 percent is only 50 % while chances of filling 38.2 % of the gap is 70% while if the gap is only 0.5% or less then chance of 100% filling is 80% while chance of filling 61.8% of the gap is 85%. this filling of opening gap has to happen during intraday. in case of intraday timeframe gaps which also has to fill intraday, the same calculation works as above
 

boarders

Well-Known Member
#7
I use the gaps basically to calculate reversals after opening in order to decide on entry direction which is as per different calcs and not as per gaps
 

Vertigo_1985

Well-Known Member
#8
I see gaps as imbalance in supply and demand. For example in gap ups, there is so much desperation to buy and lack of selling interest that a gap happens. So next time the stock reaches this area again it creates buying interest in people as they see it as important level from which they can profit. Similar for gap down.
As for your questions ..
1. Gap between two candles is calculated by finding the difference between a candles opening price and its previous candles closing price.
2. Mostly, the gaps being talked about are on daily Tf( difference between todays opening and yesterdays closing).
Although higher timeframe gaps are more important(daily more important than hourly), i would say its important also depends on the timeframe being used by the trader. A higher timeframe gap is visible on lower timeframe but vice-versa isn't true. So for a trader with 5 min Tf daily gap would be visible and would act as important level but for someone with daily Tf a gap in 5 min would be irrelevant.
So as per your example, gap was created in intraday,so it would not be visible in daily chart. So for someone not watching intraday chart the intraday gap would be irrelevant, but with lower Tf both 105 and 101 would be important support areas.
 
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boarders

Well-Known Member
#9
I see gaps as imbalance in supply and demand. For example in gap ups, there is so much desperation to buy and lack of selling interest that a gap happens. So next time the stock reaches this area again it creates buying interest in people as they see it as important level from which they can profit. Similar for gap down.
As for your questions ..
1. Gap between two candles is calculated by finding the difference between a candles opening price and its previous candles closing price.
2. Mostly, the gaps being talked about are on daily Tf( difference between todays opening and yesterdays closing).
Although higher timeframe gaps are more important(daily more important than hourly), i would say its important also depends on the timeframe being used by the trader. A higher timeframe gap is visible on lower timeframe but vice-versa isn't true. So for a trader with 5 min Tf daily gap would be visible and would act as important level but for someone with daily Tf a gap in 5 min would be irrelevant.
So as per your example, gap was created in intraday,so it would not be visible in daily chart. So for someone not watching intraday chart the intraday gap would be irrelevant, but with lower Tf both 105 and 101 would be important support areas.
following his post I must clarify that I am an intraday trader and my outlooks are based accordingly.
 

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