Here is then the Daily Live Cattle Futures chart from fall 03. Notice how the gaps and lock limit moves up occur in a decidedly upward trending market and then the subsequent gaps and lock limit down moves occur in a market that is already trending lower. Gaps tend to come in the direction of the predominant trend. Not always, but a great deal of the time. That is all we are doing here--trying to find things that happen a great deal.
The second gap was in the noise as I have described above and can clearly be seen as a gap that was to be filled. Until the chart gives you the reversal signals, not just a gap, you stay with the trade. Those of us who have studied gaps can see a continuation gap from an oops gap time after time. Anyway, it doesn't matter--you have already been riding the trade, why freak out and get out. --Not until reaction lows are breached say I.
I have studied gaps and find it to be inconclusive. I know alot of people like to look into things and try to draw conclusions (even when the conclusions are unwaranted). Furthermore, by looking at FX futures, that is just a bad idea. Why look at a derivative when you can go right to the source by looking at the underlying? Also, futures contracts are just full of meaningless gaps until the contract in question becomes the front month contract (just as in your chart you posted that big gap occured when the contract was not front month).
Here, why don't you try explaining these gaps on this EUR/USD futures contract. You should have a hay day on this one. http://www.tfc-charts.w2d.com/chart/EC/C7
Currency futures back months mirror the front month. Here is the daily chart as well. even if this gap is created by a rollover of the front month, you can see that by buying when the technicals presented themselves , you would be rewarded. More often than not, gaps are in the direction of thre trend. Without reversal signals from the technicals, they are most likely "noise"
Looks to me like the technicals are giving clear indications ahead of time in terms of direction of the market. The technicals don't predict gaps of course, they just predict direction. When you trade from the predominant position is the market, the gaps will many times more often than not be in your favor. Trading is very very simple. Not easy mind you-but simple.
It's always easy to preach from hindsight -- nobody beats them technical traders when it comes to rehashing history
Yes, always easy to find stuff like "Oh it is 100% obvious that it was going to crash because it made a doji followed by a 2 dogsfucking formation preceded by a triple divergeance on the rsi and the exhaustion gap was filled when volome spiked as the support on the square root of the weekly candle's closing price converged whith the overbought level in macd 12.5,64,96 and the dead italian mathematician (Fibonacci) level was confirmed at the 50% level by a triple milti-derictional resistance bounce and the moving averages 1,2,3,4,5,6,7,8,9,10,11,12,& 13 all confirmed that it was a bearish configuration while the trend was obviously overdone .... you'd have to be stupid not to see how obvious that was !"
... and then you ask if they made a good profit on the trade ... the response is often "no, I was waiting for confirmation "