Hello, gap theory: During the trading process of the market, stock indexes and stock prices of individual stocks often appear with gaps of varying sizes, so the corresponding gap theory is produced, and gaps are used to measure the market. There are not a few investors, and a clear statement in this theory, "Three jumps, all the energy will be exhausted" is widely circulated in the market. The biggest feature of the gap theory is to provide investors with an opportunity to directly observe the market. It is a derivative of the market's rise and fall swap rules. Existence has its rationality. From this point of view, the gap theory has its own basis for survival. One of the important forms is the upward or downward island-shaped reversal caused by gap to gap, which is a form recognized by most institutional investors in the market. However, it should also be noted that island-shaped reversals can also be used by bulls or bears to cheat. This form is only reliable if it is supported by trading volume. This doesn’t just refer to the broader market, but individual stocks as well. Of course, any indicator and theory has its flaws, and the gap theory is only a type of technical analysis. For example, if there are three upward or downward jumps in the market, after the energy for upward long or downward short selling is concentrated in the short term, Even if there is no gap, the power of the long side or the short side will be weakened in the short term. When the stock index is bullish, a few upward gaps will certainly not stop the market from moving forward. Some stocks were severely overdrafted and speculated in the early stage, and immediately fell sharply in the market outlook, creating several downward jumps. This does not mean that the stock has stopped falling. Therefore, when using the gap theory, you still need to combine the specific conditions of the market at that time and make judgments based on other indicators, so as to improve your ability to survive in the market.
The gap refers to a period of rapid and large changes in the stock price without any transactions. It is displayed as a vacuum area on the stock price trend chart. This area is called a gap. It is also usually called a gap, or a gap. It's a crack. When a gap appears in the stock price, after several days or even longer changes, and then reverses and returns to the price of the original gap, it is called the closing of the gap, also known as short filling or filling.
1． Ordinary gaps
This type of gap usually appears in dense trading areas, so many consolidation or turning patterns that take a long time to form, such as triangles, rectangles, etc., may have this type of gap formed.
Practical Application
Ordinary gaps refer to gaps that have no special form or function. They can appear in any trend form. But in more cases, it appears in the finishing form. It has an obvious feature, that is, the gap will be covered soon, thus giving investors a simple opportunity for short-term operations: that is, when the ordinary gap in the upward direction appears, the relative high point above the gap The stock should be sold, and then the stock should be bought back after the ordinary gap is closed; and when the ordinary gap in the downward direction appears, the stock should be bought at a relatively low point below the gap, and then the stock should be sold after the ordinary gap is closed. (Reminder: 95% of the time, ordinary gaps will be filled, so don’t watch the jump and chase it as soon as your mind gets hot)
The premise of this operation method is to determine whether the gap is an ordinary gap. , and the stock price must rise and fall to a certain extent before this strategy of selling high and buying low can be adopted. However: I personally think that if the ordinary gap is grasped well, the profit can be considerable: it may even be the bottom and play an important role in the subsequent trend, because under normal circumstances there will be other gaps later, so in the ordinary gap In terms of tactics, I personally have summarized a few of them through long-term actual combat.
1. The first rising gap that appears after a stock has fallen for a period of time or for a long time. As for how to count the decline as complete? You can use the divergence of the basic and simplest MACD and RSI indicators. Some people will say that since they think that the decline has ended, what should they do to find a gap?
My answer: The gap that jumps upward is the clarion call for battle. Understanding the gap theory will give you a more successful understanding of market trend changes. Isn’t this good?
2. Ordinary After the gap is formed, under normal circumstances, most stocks will definitely cover the gap.
The time is 3---5 days or even longer. Of course, stocks that do not fill the gap have more investment value.
3. The shrinkage of trading volume is the key to buying stocks.
As for stocks whose gaps have been filled, if you do not buy them in the ordinary gap strategy, such stocks may continue to fall. The shrinkage of trading volume is generally when the turnover rate is below 2%. The lower the better! The time to buy can be the negative line or the positive line with a lower shadow after the shrinkage is formed. The longer the lower shadow, the better. (It must be Above the gap) the success rate of buying before the afternoon close will be greatly increased.
2. Breakout Gap
A breakout gap is a gap created when a market breaks through after the completion of a dense reversal or consolidation pattern. When the stock price jumps away from the pattern with a large gap, it indicates that a real breakthrough has been made. Because wrong moves rarely create gaps, and gaps can show the strength of the breakthrough. The larger the breakthrough gap, the stronger the changes in the future.
After the completion of the intensive reversal or consolidation pattern, the gap formed by a substantial rise or fall when the stock price breaks through resistance or falls below support is called a breakthrough gap. The emergence of a breakthrough gap is generally regarded as a sign of a formal breakthrough in stock prices. When the stock price breaks through upward, it must be accompanied by large trading volume. The larger the gap, the more drastic the stock price will be in the future.
Breakout gaps are usually formed during high-value transactions. Breakout gaps more often than not are not filled. The price may return to the upper edge of the gap (in the case of an upward breakout), or even partially fill the gap, but usually some of it remains intact and cannot be fully covered. Generally speaking, after such a gap occurs, the greater the trading volume, the less likely it is that the gap will be covered.
Reminder: If the gap in the breakthrough gap is completely covered and the price returns to the bottom of the gap, then this may actually be a signal that the original breakthrough is not established. An upward gap usually plays a supporting role in subsequent market adjustments, but a breakthrough in the original direction does not hold. The downward gap will become a blocking area in the subsequent market rebound.
Practical application of breakthrough gap
The characteristic of breakthrough gap is that the stock price moves rapidly in a certain direction, away from the gap formed by the original pattern. Breaking through the gap contains extremely strong momentum, so it often manifests as fierce price movements. The analysis of breaking through the gap is of great significance. It generally indicates that the market trend will undergo major changes, and this change trend will develop along the direction of the breakthrough. For example: for an upward breakthrough gap, if the trading volume increases significantly during the breakthrough and the gap is not closed, then the gap formed by this breakthrough is a true breakthrough gap. Usually, after the breakthrough gap pattern is confirmed, investors can boldly buy regardless of the rise or fall of the price.
3. Continuous gap
A gap appears on the way up or down, which may be a persistent gap. This gap is not to be confused with a breakout gap. Any rapid rise or fall after leaving a pattern or intensive trading area, most of the gaps that appear are persistent gaps. This gap can help us estimate the magnitude of future market volatility, so it is also called a quantitative gap.
The persistent gap is also called the measurement gap, that is, after the stock price reaches the gap, the extent to which it may continue to change is generally equal to the extent of the stock price jumping from the beginning to this gap. This type of gap reflects that the market is moving smoothly with moderate trading volume. In an uptrend, the occurrence of measurement gaps indicates market strength; in a downtrend, it indicates market weakness. Just like the case of breakout gaps, in an upward trend, continued gaps will form support areas in subsequent market adjustments, and they will usually not be filled back. Once the price returns to the relay gap, then It is a negative signal for the upward trend.
The relay gap is often the second gap in a wave of market conditions. After its appearance, the stock price will continue to move forward, and the original rising or falling market will still have a certain degree of sustainability.
4. Depletion gap (exhaustion gap)
Like the persistence gap, the depletion gap appears accompanied by rapid and large stock price fluctuations. In a rapid rise or fall, the fluctuations in stock prices do not gradually appear resistance, but become more and more rapid. At this time, a price jump (or gap down) may occur, and this gap is a consumption gap. Usually, consumption gaps mostly appear at the end of panic selling or consumption rises, so they are also called exhaustion gaps
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Characteristics of the depletion gap: "One burst of strength, then decline, and three times exhaustion." This sentence is also applicable to the stock market, especially for the gap theory. In a rising or falling market, the first gap is often the strongest, and the intensity of the second gap will weaken, but generally the market can continue, and the intensity of the third gap will often weaken again and continue. There is insufficient motivation to move forward, and the sustainability of the market is relatively poor. Sometimes a fourth gap will appear. However, the more gaps there are, the greater the risk, and the more worthy of our vigilance. We call the gap at the end of the third or fourth market a "depletion gap". If the exhaustion gap is filled within a few days, the market will generally begin to turn around.
Risk disclosure: This information does not constitute any investment advice. Investors should not use this information to replace their independent judgment or make decisions based solely on this information. It does not constitute any buying or selling operation and does not guarantee any returns. If you operate by yourself, please pay attention to position control and risk control.