0 Powerful Implications of Gaps Part 2

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Figure 2 - Centex Corp.

The long-term investor, after analyzing the monthly chart, could have established a position, with the knowledge that funds were flowing into this sector with much more enthusiasm than other sectors, which could have been just rising with the overall tide. A great indication for where to position your funds!

Figure 3 - TOL, Toll Brothers Inc. is another example of the gap up after a Candlestick buy signal, indicating that the investors were coming into this stock with vigor. The result was eventually returns of 80 - 100% in a four or five month time frame.

Figure 3 - Toll Brothers Inc.

 

Figure 4 - Cross Media Marketing

Note in Figure 4 - XMM, Cross Media Marketing, after Doji/Haramis, that the gap up the next day clearly indicated the trend had stopped. The resulting trades produced 28.5% and 49.3% respectively. Probabilities demonstrate that a gap up is going to preclude an advance in price under these circumstances.

Unofficially, statistics illustrate an 80% and better probability that a trade will be successful when stochastics are oversold, a Candlestick “buy” signal appears, and the price gaps up. (The Candlestick Forum will offer our years of statistical figures as “unofficial.” Even though over fifteen years of observations and studies have been involved, no formal data gathering programs have been fully operated. However, currently the Candlestick Forum is involved with two university studies to quantify signal results. This is an extensive program endeavor. Results of these studies will be released to Candlestick Forum subscribers upon completion.)
Having this statistic as part of an investor’s arsenal of knowledge creates opportunities to extract large gains out of the markets. The risk factor remains extremely low when participating in these trade set-ups.
Note in Figure 5 - SPF, Standard Pacific Corp., gaps up the day after a Harami stops the current downtrend. The gap initiates a move that sends this price to a higher level to stay. The following day gaps up significantly, consolidates for a few days and then gaps up again. The second and third gaps are considered “measuring gaps”. These types of gaps will be explained later in this book. The important aspect from this chart is the initial gap up, revealing that the buying was overwhelming the selling.

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