Gaps Matter

Discussion in 'Trading' started by ljyoung, Apr 11, 2008.

  1. A useful chart (to some) on a day like today (and several other days to come). YMM8 RTH (9:30AM-4:00PM EST).


  2. all price action matters,

    All a gap does is give you a target or an exit target.
    It doesn't give you an entry, it doesn't give you foresight on when to enter a trade.

    the reason why it gives a target, mainly because so much volume traded there, one has to retest the area to make sure everybody has their seat belt on, then proceed to go where price wants to go.
  3. Perhaps though, some price action matters more than others. Like price action at the edge of an unfilled long term gap with the trend pointing decidedly down. So if you were short YM and pierced the upper edge of the gap (having already pierced the upper pole of the gap) you might be inclined to stay short, take a partial profit (scale out x cars) or whatever.

    Sometimes gap tests are associated with volume spikes sometimes not. It is always interesting to watch the volume after that initial penetration and as well the volume pattern on the way down to the gap edge (or pole).

    It's also interesting, on a macro level, to note what YM's pals (check out ES or SPY or DIA) do at the edge of their complementary gaps, either just for the sake of noticing for future reference or to assist in deciding what to do with the YM short.

  4. The saga continues! YMM8 is 2 points short of a gap closure (12262) and 24 points off the low pole (12240). Volume was decreasing till the close of the last 60 min bar when it tweaked up. So who wins this squabble - the sucky PPI or the boyz at State Street and USB?
    For fun have also included ESM8 as the second attachment.

  5. ESM8.
  6. End of the babbling for today.
    YMM8 in fact "closed" that RTH gap two nights ago hitting its overnight low exactly at 12262. ESM8 didn't though, so it remains to be seen what to make of YM's intraday "test and hold" of that gap closure. Which is to say there is a setup now for ES to close its RTH gap while YM "closes" and holds above 12240.
    On the other hand neither may ever see these prices again or may blow through and set new June contract lows. Traders, like economists and speculators, need to be aware of possible outcomes but unlike economists and speculators, should always let the markets tell you what to do.