When I first began trading some 20 plus years ago, gaps were a rare occurrence. If a stock gapped up or down at the open in a big way, it was the talk for months. "Hey John. Do you remember that big gap down in Intel (INTC) two months ago? Wasn't that something?" It was that rare. The reason for its rarity rested in that fact that information was disseminated into the market place at a much slower pace two decades ago. There was no internet being used, and financial news programs were not in demand at the time. As result, the public (traders) became aware of key occurrences which could affect the perceived value of a stock's shares, gradually, slowly, making the transition or change in the prices occur over time.
A gap is caused by everyone acting at the same time because they received the information pretty much at the same time. The normal supply/demand can't handle a "run on the bank" or a bum-rush, if you will, so it gaps or adjusts immediately to the spot where there is some equilibrium between those who want the shares and those who are willing to sell the shares.
Below you will find two fun trades based on the market's tendency to fill its gaps. While every gap does not get filled, most do because the market has a tendency to despise voids or uncovered territory. Gaps create vacuums, which suck the stock back into them. It is almost as if the market, having missed a spot by gapping up or down, wants to go back and fill in its missed area. The last play is based on the "Death Gap" strategy which I believe you'll really enjoy. Keep in mind that these are presented here to educate you on gaps and their tendencies. They are not official recommendations. Should you decide to play them as I would, I'd prefer you to do so while be guided in the chat room which I currently provide free of charge for the moment. Study the charts below and listen to each video lesson which will explain how I'd play each one based on the Gap Fill Tendency. And once agin, if you'd like to be guided in the plays as they happen, visit my free chat room at www.olivervelez.com/chat.htm. The password is my first name with no capital: oliver.
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