Hi: I've been noticing in this chaotic market that thinly traded "gaps" on the S&P seem to mostly get "filled in". I'm curious to research this more, but not sure what the proper term is. There's plenty of info on true "gaps" [untraded jumps, typically from the difference between the market closing and opening price], but not on the traded equivalent--big jumps or drops without much resistance [this phenomenon doesn't seem to be directly connected to volume, just "jumps/stretches"]. In other words, there hasn't been any significant news, but the market is "jumpy"/shoots up, and it seems these "gaps" [not gaps in the true sense of no trades there], get filled in later once the direction turns. Is there a technical term for this? Or if you know of any info on how to trade these types of situations, I'd be much appreciative to know the link, article or book you recommend? Or maybe I'm just fantasizing a mirage of no real opportunity. Best and thanks for any help, Marshall G
You might be talking about spikes. If you can delete price on your charts and still plot the bid then you can get a much better idea of the price action. You can do this on quotetracker. Hope this helps. Hard to tell exactly what you are talking about.
yes, I think spikes probably is the term I'm looking for. And I'm probably wrong they may well be connected to volume. sorry for being so novicey here, but if anyone knows something about "filling in" spikes, that would be appreciated. thanks, Marshall
I think you might be talking about the kind of jerky rapid up or down price movement that takes place when a series of stacked stops are being taken out. This occurs when you have a stair stepped closing prices (either up or down). As an example, Say the prices have been slowly stepping down in a more or less regular stair-step fashion for four or more bars or candles. Then suddenly the price reverses up to the top of the "stairs". This is caused by stops being taken out (because stops tend to be placed just above (below) the previous bar (candle), and yes, usually once the stops have been taken out the price will often move back down (or up) to resume its original direction. Is this what you are talking about?
I didn't realize that's what I was talking about, but I think it is. This is from watching the SPY. Do you know of any info on trading these opportunities and is it just for indexes or would it work with stocks as well?
You will see pattern develop in the charts of anything that is traded where traders commonly use stop loss orders. Individual stocks, spy, etc. It is one of the most common chart patterns. Try this link under "Trading Strategy" forum, it may be helpful. http://www.elitetrader.com/vb/showthread.php?s=&threadid=137487&perpage=6&pagenumber=1
I read it piezoe--thanks! Further in your post, you point out the simplicity of this. If it's as I'm sensing, it does seem quite simple compared to what one normally sees. Of course doing it in real time and having the nerve when not always going your way is the tricky part. thanks again for the help! best, Marshall
You're quite welcome. Now that you know what to look for, you will see this occur over and over. You never know when stops will be taken out, but you will certainly recognize the action once it gets started, and you can join in if you are so inclined to ride along. You'll also get pretty good at estimating where the move is likely to peter out. It is not uncommon for this action to be a prelude to the market changing direction, so once the stops are executed, instead of the price reversing, it just keeps on going. (I'm not sure of how much this applies to the current market which is acting like someone with a squirrel in their pants.)