Mapping Your Voyage of Discovery - CQG.com

GapsFor me, Gaps were one of the first areas of concentration when I began trading. Before theadvent of computers I used to receive a weekly printed chart book that I would fill as timeprogressed. It was impossible to add mathematical calculations to the data, which meantpure price action and Gaps were an obvious phenomena to analyse. Today, with the adventof almost 24 hour markets, much of the established theories have been lost, due in a largepart to trader’s laziness. This means that patterns can be found that many marketparticipants are unaware of. On many markets, the opening is largely superfluous as it is nota product or an auctioning process, due to that lack of depth in activity. Therefore, it makessense to redefine data to the point in time where depth increases. This is 7 a.m. for futuresand 6 a.m. for FX.There is plenty of nonsense written about different types of Gaps. This can be Breakout,Continuation, or Exhaustion Gaps. Breakout Gaps are the only ones that can be qualifiedinstantly, as they must occur after a sideways pattern. The others need the subsequentprice action to prove their accuracy.A common error, when looking back through data, is to only see the gaps that work. Thereality is that most gaps are filled on the same day and are therefore not visible. It is criticalthat you analyse the history of the market you are concerned with, in order to understandthe frequency of Gaps. The questions to ask are• How many opening gaps?• How many are filled the same day?• How many are filled within five days?• How many are filled within two hours of the gap appearing?