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TECHNICALANALYSIS OF GAPSThis page intentionally left blank TECHNICALANALYSIS OF GAPSIDENTIFYINGPROFITABLEGAPS FORTRADINGJULIER. DAHLQUISTRICHARDJ. BAUER, President, Publisher: Tim MooreAssociate Publisher and Director of Marketing: Amy NeidlingerExecutive Editor: Jim BoydEditorial Assistant: Pamela BolandOperations Specialist: Jodi KemperAssistant Marketing Manager: Megan GraueCover Designer: Alan ClementsManaging Editor: Kristy HartSenior Project Editor: Lori LyonsCopy Editor: Apostrophe Editing ServicesProofreader: Kathy RuizIndexer: Lisa StumpfCompositor: Nonie RatcliffManufacturing Buyer: Dan Uhrig 2012 by Julie R. Dahlquist / Richard J. Bauer, Education, as FT PressUpper Saddle River, New Jersey 07458This book is sold with the understanding that neither the author nor the publisher isengaged in rendering legal, accounting, or other professional services or advice bypublishing this book. Each individual situation is unique. Thus, if legal or financialadvice or other expert assistance is required in a specific situation, the services of acompetent professional should be sought to ensure that the situation has been evalu-ated carefully and appropriately. The author and the publisher disclaim any liability,loss, or risk resulting directly or indirectly, from the use or application of any of thecontents of this Press offers excellent discounts on this book when ordered in quantity for bulkpurchases or special sales. For more information, please contact Corporate andGovernment Sales, 1-800-382-3419, For sales out-side the , please contact International Sales at charts created with TradeStation. TradeStation Technologies, Inc. All and product names mentioned herein are the trademarks or registeredtrademarks of their respective rights reserved. No part of this book may be reproduced, in any form or by anymeans, without permission in writing from the in the United States of AmericaFirst Printing June 2012ISBN-10: 0-13-290043-2ISBN-13: 978-0-13-290043-0Pearson Education Education Australia PTY, Education Singapore, Pte. Education Asia, Education Canada, Educaci n de Mexico, de Education JapanPearson Education Malaysia, Pte. of Congress Cataloging-in-Publication DataDahlquist, Julie R., 1962-Technical analysis of gaps : identifying profitable gaps for trading / Julie , Richard J. Bauer, 978-0-13-290043-0 (hbk. : alk. paper)1. Stocks Charts, diagrams, etc. 2. Technical analysis (Investment analysis) , Richard J., 1950- II. Title. 2042 dc232012010828To Katherine and SeppThis page intentionally left blank ContentsAbout the Authors . . . . . . . . . . . . . . . . . . . . . . . . . xiiChapter 1: What Are Gaps? . . . . . . . . . . . . . . . . . . . 1Chapter 2: Windows on Candlestick Charts . . . . . . 17Chapter 3: The Occurrence of Gaps . . . . . . . . . . . . 43Chapter 4: How to Measure Returns . . . . . . . . . . . 71Chapter 5: Gaps and Previous Price Movement . . 107Chapter 6: Gaps and Volume . . . . . . . . . . . . . . . . 121Chapter 7: Gaps and Moving Averages. . . . . . . . . 139Chapter 8: Gaps and the Market . . . . . . . . . . . . . 159Chapter 9: Closing the Gap . . . . . . . . . . . . . . . . . 205Chapter 10: Putting It All Together . . . . . . . . . . . 219Index . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 227AcknowledgmentsWe first started looking at gaps because theyprovide useful illustrations when teachingour students how to read stock hear a news report that their favorite companyjust reported earnings, that a company is being sued, orthat a well-known company, such as Apple, is launch-ing a new product and ask how these events will affectthe price of the stock of the company. These newsevents often trigger sizeable price moves, frequently ona gap. We can introduce the concept of a gap easily andquickly and then use the conversation as a jumping-offpoint for broader discussion of the tools of repeatedly come up during small talk whenpeople find out that we have a background in technicalanalysis. Even individuals who know little about thestock market seem to have heard the adage the gap isalways filled. The two technical analysis terms thatpeople seem to latch on to are head and shoulders and gaps. After engaging in a number of these con-versations, we thought it would be interesting to pursuethis topic a bit more. Gaps seem to have captured theattention of the earliest technical analysts, but we foundsurprisingly little systematic study of gaps. Much of therecent work in the area of technical analysis has beenbased on complex mathematical models. We thought itwould be a fun and interesting endeavor to investigateone of the simple, basic ideas of technical analysis inmore depth. Thus, a couple of years ago we began the beginning, we thought we would engage in asimple study that would provide some interesting storiesregarding gaps to use in our classrooms. As we startedlooking at gaps, our appreciation for their use as a toolof technical analysis grew and our inquiry grew. In May2011, we were honored as recipients of the MarketTechnicians Association s Charles H. Dow Award inTechnical Analysis for our paper, Analyzing Gaps forProfitable Trading Strategies. We realized that in ourpaper we had only been able to scratch the surface ofgaps. Our editor, Jim Boyd, suggested we continue ourinvestigation in the form of a book the result of whichyou are holding in your hands. We are indebted to a number of people who helpedus learn more about gaps and who helped put thisknowledge together in the form of this book. First, weare indebted to Charlie Kirkpatrick for all the supportand assistance he has given us in learning about techni-cal analysis over the years. His knowledge and patienceare endless. Ellie Kirkpatrick, Charlie s wife, is thegreatest cheerleader anyone could have in their continues to motivate and inspire us. We thank bothCharlie and Ellie for the endless list of things that theyhave done for us and our would like to thank Fred Meissner and HankPruden for their support and encouragement. They areboth stellar examples of the friendliness and warmthexhibited by many in the technical analysis , too, have been especially kind to our to all those who work in the MTA office, espe-cially Tom Silveri, Tim Licitra, and Shane Skwarek. Thisproject has benefited from conversations with membersof the MTA through electronic discussion groups, web-inars, and meetings across the world from Houston toixAcknowledgmentsPrague. A special thanks to Robert Colby and RalphAcampora for answering questions along the , also, to Norgate Investor Services for grantingus permission to publish our results, which were basedon their stock price data marketed as Premium are grateful to the Pearson staff, especially exec-utive editor Jim Boyd, managing editor Kristy Hart, andsenior project editor Lori Lyons for their hard work anddedication in bringing this project to have dedicated this book to our children,Katherine and Sepp. They challenge, inspire, and enter-tain us in innumerable ways. It is bittersweet watchingour children grow up. We miss their younger versions,but our relationship with them both deepens andbecomes more meaningful and special with each passingyear. We feel richly blessed with the honor of being theirparents. Julie and RichardBeing able to undertake a project like this requiresthe encouragement and support of family, teachers,friends, and colleagues over a number of years. Thanksto my mom for encouraging me to pursue studies in eco-nomics and finance, although she claims not to under-stand anything about it herself. Thanks to my sisters,Carrie and Katie, for being there to laugh about oldfamily stories whenever I need a break from luck to my nephew, John, as he embarks upon hiscollege career! JuliexTechnical Analysis of GapsI want to thank family members for their support. Ithank my father, Dick Bauer, for his continued love andencouragement. He has also given me an appreciationfor dedication, perseverance, and striving for also thank Amy and Mary for their ongoing love andsupport. I look forward to seeing the paths taken byJake, Sophia, Joshua, Grant, and Lucy; they haveincredible parents. Thanks to Don, Ruth, and Brendafor all of their encouraging words. RichardxiAcknowledgmentsAbout the AuthorsJulie R. Dahlquist, , CMTis a senior lecturer,Department of Finance, at the University of Texas atSan Antonio College of Business. She is the recipient ofthe 2011 Charles H. Dow Award for excellence and cre-ativity in technical analysis. She is the coauthor (withCharles Kirkpatrick) of Technical Analysis: TheComplete Resource for Financial Market Techniciansand coauthor (with Richard Bauer) of Technical MarketIndicators: Analysis and Performance. Her research hasappeared in a number of publications, includingFinancial Analysts Journal,Journal of TechnicalAnalysis,Active Trader,Working Money,ManagerialFinance,Financial Practices and Education, and theJournal of Financial Education. She serves on the boardof the Market Technicians Association EducationalFoundation and is a frequent presenter at national andinternational conferences. She earned her in economics from University of Louisiana atMonroe and Texas A&M, respectively, and her inTheology from St. Mary s J. Bauer, Jr., , CFA, CMT is Professor ofFinance at the Bill Greehey School of Business at s University in San Antonio, Texas. His degreesinclude a in Physics, in Physics, inEconomics, and a in Finance. He is the author ofGenetic Algorithms and Investment StrategiesandTechnical Market Indicators (with J. Dahlquist), bothpublished by John Wiley and Sons. He is the recipientof the 2011 Charles H. Dow Award for excellence andcreativity in technical analysis. His research hasappeared in a number of publications, includingFinancial Analysts Journal Journal of BusinessResearch,Managerial Finance, andKorean FinancialManagement Journal. He became a CFA charterholderin 1990 and a CMT charterholder in 2010. He is a pastpresident of the CFA Society of San the AuthorsThis page intentionally left blank 1Chapter 1What Are Gaps?Gaps have attracted the attention of market tech-nicians since the earliest days of stock gap occurs when a security s price jumpsbetween two trading periods, skipping over certainprices. A gap creates a hole, or a void, on a price chart. Because technical analysis has traditionally been anextremely visual practice, it is easy to understand whyearly technicians noticed gaps. Gaps are visually con-spicuous on a price chart. Consider, for example, thestock chart for Huntington Bancshares (HBAN) inFigure A quick glance at the price activity revealsfour gaps. 2Technical Analysis of GapsCreated with TradeStationFIGURE on stock chart for HBAN September 29 December 2, 2011In Figure , Gap A and Gap C are known as a gapdown. A gap downoccurs when one day s high is lowerthan the previous day s low. In the figure you can seethat the lowest price for HBAN on September 19 was$ On September 20, the highest price at whichHBAN traded was $ Thus, a gap of 19 cents wasformed. From September 19 through September 20,HBAN traded for $ and higher and for $ andlower; however, no shares traded hands at a pricebetween $ and $ Thus, a void or gap in pricewas as a security s price can gap down, it can gap gap up occurs when one day s low is greater than theprevious day s high. Both Gaps B and D in Figure gap technicians did not pay attention to gaps sim-ply because they were conspicuous and easy to spot ona stock chart. Because gaps show that a price hasjumped, they may represent some significant change inwhat is happening with the stock and present a tradingopportunity. A technical analyst watches stock price behavior,searching for signs of any change in behavior. If a stockis in a strong uptrend, the analyst watches for any signthat the trend has ended. When a stock is in a consoli-dation period, the analyst watches for any sign of achange in behavior that would indicate a breakouteither to the upside or to the downside. Spotting thesechanges leads to profitable trading, allowing the traderto jump on a trend, ride the trend, and exit once thetrend has ended. Gaps can be one indication of animpending change in Are Gaps?4Technical Analysis of GapsGiven the persistence of superstitions, such as a gapmust be closed, surprisingly little study has beenundertaken to analyze the effectiveness of using gaps intrading. This book provides a comprehensive study ofgaps in an attempt to isolate gaps which present prof-itable trading of GapsGap types differ based on the context in which theyoccur. Some price gaps are meaningful, and others canbe disregarded. Breakaway (or Breakout) GapsAbreakaway gapis one that occurs at the beginning ofa trend (see Figure ). In November 2006, AT&T (T)was in a trading range. On November 29, the stockgapped up and an uptrend began. Because profits aremade by jumping on and riding a trend, breakawaygaps are considered the most profitable gaps for (or Measuring) GapsA gap that occurs along a trend line is called a runawaygapor a measuring gap. Often, a runaway gap appearsin a strong trend that has few minor corrections. Thecontrast between a breakaway gap and a runaway gapis highlighted in Figure In July 2006, Apple (AAPL)experienced a breakaway gap, with price jumping from$55 to $60 a share, and an uptrend began. The stockprice headed higher over the next 3 months. Then, onOctober 19, the stock gapped up again by several dol-lars; the uptrend continued. 5What Are Gaps?Created with TradeStationFIGURE gap on stock chart for T, November 13 December 14, 20066Technical Analysis of GapsRunaway gaps are often referred to as measuringgaps because of their tendency to occur at about themiddle of a price run. Indeed, this is what AAPL did inFigure Thus, the distance from the beginning of thetrend to the runaway gap can be projected above thegap to obtain a target price. Bulkowski (2010) findsthat an upward runaway gap occurs, on average, 43%of the distance from the beginning of the trend to theeventual peak, and a downward gap occurs, on average,at 57% of the GapsAs its name sounds, an exhaustion gapoccurs at the endof a trend. In the case of an uptrend, price makes onelast attempt to move higher on a last gasp of breath;however, the trend is exhausted, and the higher pricecannot be sustained. For example, the gap up onJanuary 9, 2007 (refer to Figure ) occurs as AAPL spowerful uptrend is coming to an end. It is easy todetect an exhaustion gap in hindsight; however, distin-guishing an exhaustion gap from a runaway gap at thetime of the gap can be difficult because the two sharemany wisdom suggests that trading exhaustiongaps can be dangerous. An exhaustion gap signals theend of a trend. However, one of two things can happen;the trend may reverse immediately, or price may remainin a congestion area for some time. An exhaustion gapsignals a trader to exit a position but does not necessar-ily signal the beginning of a new trend in the with TradeStationFIGURE gap on stock chart for AAPL, June 23, 2006 January 24, 20077What Are Gaps?8Technical Analysis of GapsOther GapsIn addition to breakaway, runaway, and exhaustiongaps, technical analysts identify a few types of gaps thatare generally of no consequence for a trader. Commongapsoccur in illiquid trading vehicles, are small in rela-tion to the price of the vehicle, or appear in short-termtrading data. Anex-dividend gapmay occur in a stockprice when a dividend is paid and the stock price isadjusted the following day. Ex-dividend gaps areinsignificant, and the trader must be careful not to mis-interpret them. Suspension gapscan occur in 24-hourfutures trading when one market closes and anotheropens, especially if one market is electronic and theother is open outcry; these are also insignificant. Anopening gapoccurs when the opening price forthe day is outside the previous day s range. After theopening, price might continue to move in the directionof the gap, forming a gap for the day. Or the price mightretrace, closing the gap. Figure shows three openinggaps for McDonald s (MCD). See how, on December 2,MCD opened at a price higher than the December 1price range. However, the price moved lower during theday, filling the gap, resulting in an overlap for theDecember 1 and December 2 bars. Of course, any gap begins as an opening gap. OnNovember 30 and December 8, MCD had an openinggap to the upside, and the price never retraced enoughon those days to fill the gap. Throughout this book,when we use the term gap we are referring toinstances in which the gap is not filled within the trad-ing session unless we directly specify that we are dis-cussing opening gaps. Created with TradeStationFIGURE gap on stock chart for MCD, November 29 December 14, 20119What Are Gaps?10Technical Analysis of GapsSome traders watch for trading opportunities withopening gaps. General wisdom suggests that if a gap isnot filled within the first half hour, the odds of the trendcontinuing in the direction of the gap increase. showed an opening gap on December 2 and onDecember 5 for MCD. Figure shows how quicklythese opening gaps were closed by considering intradaydata and using 5-minute bars. On December 2, forexample, the opening was filled on the fifth 5-minutebar, or within 25 minutes of the open. On December 5,the opening gap was filled within the first 5 minutes Note on TerminologyThis book focuses on daily charts and trading. To clar-ify, we use Day 0 to represent the day a gap occurs (seeFigure ). The day before the gap is Day 1 and thestock s high on Day 1 is the beginning of the gap. Onthe next day (Day 0), the stock s low exceeds the highon Day 1, forming the gap. We refer to the day of thegap as Day 0 because we do not know until the close oftrading that day whether we simply have an openinggap or if we have a gap that remains unfilled. If we are to make trading decisions based upon theoccurrence of a gap, the soonest we would be able toenter a position is the open on Day 1. Thus, when wereport a 1-day return, we base the return calculationfrom the open on Day 1 to the close on Day 1. To cal-culate longer returns, the return is calculated from theopen at Day 1 to the close on the day of the returnlength; therefore, a 3-day return is calculated as buyingat the open of Day 1 and selling at the close of Day with TradeStationFIGURE gaps filled on intraday stock chart for MCD, December 1 5, 201111What Are Gaps?12Technical Analysis of GapsFIGURE occurs on Day 0How to Use Gaps in TradingHow might a trader, seeing a gap, react to the informa-tion? If the trader thinks that the gap is a breakawaygap, he would want to trade in the direction of the other words, if a breakaway up gap occurred, hewould assume an uptrend is beginning and take a longposition. If a breakaway down gap occurred, he wouldassume a downtrend is beginning and take a short posi-tion. He would also want to trade in the direction of thegap, if the stock were trending and a gap occurred thathe thought was a measuring gap. Throughout this bookwe refer to trading in the direction of the gap as a con-tinuation strategyin that the trader is expecting theprice to continue in the direction of the a trader sees a gap she thinks drives the price up somuch that there is little room for the price to pushhigher, she would want to trade opposite of the , for example, a pharmaceutical companyannounces that it has received FDA approval for a newdrug. Upon the release of this good news, the stock gapsup. If the trader thinks that the market is over-reactingto this good news, she would want to short the , if she thinks that market players have driventhe price down too low on a gap, she would want totake a long position. Remember the old adage that agap must be filled. The notion that a gap is always filledis based on the idea that the market players do not liketo see a hole or a void in a price movement and willwork to fill that gap. We refer to trading in the oppositedirection of a gap as a reversal technical analysis theory would tell youto trade breakaway and measuring gaps using a contin-uation strategy. You might want to trade an exhaustion13What Are Gaps?14Technical Analysis of Gapsgap with a reversal strategy; however, a major problemis that traditional theory has not provided a sound wayto classify a gap as it occurs. It is only in hindsight thatyou can tell if a gap was a breakaway, measuring, orexhaustion gap. The main task in this book is to help you pick up onclues as to what type of gap may be occurring so thatyou can enter successful trades. Chapter 2, Windowson Candlestick Charts, discusses traditional Japanesecandlestick patterns that contain gaps. Chapter 3, TheOccurrence of Gaps, looks at the occurrence of gapsand considers the frequency of gaps, the distribution ofgaps across stocks, and the distribution of gaps overtime. Chapter 4, How to Measure Returns, discussesour methodology for determining profitable gap tradingstrategies. Chapter 5, Gaps and Previous PriceMovement, considers what clues the price movementleading up to the gap gives you to form profitable trad-ing strategies. Because volume is an indication of howimportant a particular day s price movement is, Chapter6, Gaps and Volume, considers the relationshipbetween volume and gap profitability. To determinewhether gaps that occur at relatively high prices have adifferent significance than those occurring at average orrelatively low prices, Chapter 7, Gaps and MovingAverages, considers the location of gaps relative to theprice moving average. Although most of this bookfocuses on individual securities, you can look at therelationship between gap significance and underlyingstock market activity in Chapter 8, Gaps and theMarket. Chapter 9, Closing the Gap, covers theoften-heard phrase, A gap must be closed. Last,Chapter 10, Putting It All Together, provides an over-all summary of how gaps can be used as part of an effec-tive trading and investment , Thomas N. Bulkowski s Free PatternResearch, , Are Gaps?This page intentionally left blank 227I N D E Xgaps, 149-157up gaps, 144Avon Products, 50BBeta, 80BioSante Pharma Inc., 50black candles, 222Black-Down-Black pattern, 112Black-Down-White pattern, 112Black-Up-Black pattern, 112Black-Up-White, 109breakaway gaps, 4Bulkowski, Thomas, 40Ccalculatingmoving averages, 140-144returns, 71-76candlestick charting, basics of,19-20closing the window, 20Symbols9/11, gaps, 49Aabandoned baby bottom, 39abandoned baby top, 37Active Trader, 219AIG, price movements, 114-116annualized returns, 76Appleexhaustion gaps, 6extreme value, 89, 92-94runaway gaps, 4AT&T, breakaway gaps, 4Atmos Energy Corporation,closing gaps, 214averages, moving averagescalculating, 140-144categorizing, 144down gaps, 147228Indexcandlestick charts, 17windows as support andresistance, 20, 23-25candlestick patterns, 26abandoned baby bottom, 39abandoned baby top, 37collapsing doji star, 34color, 107downward gap tasuki, 27gapping doji, 32gapping side-by-side whitelines, 30-31tasuki, 27, 29two black gapping candles, 32upward gapping tasuki, 27categorizing moving averages, 144Central Gold Trust, trading onhigh gap days, 181Cheniere Energy Inc., 101Chrysler, 166Cincinnati Financial Corp, 124Clark, Frank Howard, 78Clearwire Corporation, 94-98closinggaps, 217timing of, 206-207, 211, 214windows, candlestick charting, 20Coffee Holding Company, 193collapsing doji star, 34common gaps, 8companiesAIG, price movements, 114-116Appleexhaustion gaps, 6extreme value, 89, 92-94runaway gaps, 4AT&T, breakaway gaps, 4Atmos Energy Corporation,closing gaps, 214Avon Products, 50BioSante Pharma Inc., 50Central Gold Trust, tradingon high gap days, 181Cheniere Energy Inc., 101Chrysler, 166Cincinnati Financial Corp, 124Clearwire Corporation, 94-98Coffee Holding Company, 193Crocs Inc., closing gaps, 210Darden Restaurant, 185, 187, 190Electronic Arts, 64Endeavour SilverCorporation, 191Equity One, 193Ericsson, collapsing doji star, 35229IndexExelis Inc, 191Finisar Corporation, 191FrontierCommunication, 185GlaxoSmithKline, 59GM, 166Goodrich Corporation, 182, 184Hasbro, 37-38Herbalife (HLF), 125Hot Topic, Inc., 211Human Genome SciencesInc., 59IBMgaps, 65volume, 122ITT Corporation, 191Jack in the Box, closing gaps, 214Jammin Java Corporation,price movements, 116-118Johnson & Johnson, candle-stick charts, 17Krispy Kreme donuts, 25-26Lehman Brothers HoldingCompany, 59McDonald s, opening gaps, 8Merck, volume and gaps, 128MineFindersCorporation, 191Monsanto, closing gaps, 211Netlist Inc., 149moving averages, 151-152Newmont MiningCorporation, 191News Corp Ltd., 63Novagold Resources, 185, 187-188Omnicare, 193Optimer Pharmaceutical,Inc., 103Pearson, downward gap tasuki, 27Premium Data, 43, 65RBS, 34-36Resmed Inc., extreme values, 89Royal Gold Inc., 191Seagate Technology PLC, 64Silver Wheaton Corporation, 191Taro Pharmaceutical, 50Temple Inland, 192TravelZoo, 61Unisys Corp., extreme values, 89Universal DisplayCorporation, 98-101Wal-Mart, 61Xylem Inc., 191company-specific events, gaps, 50continuation approach, 173230Indexcontinuation strategies, gaps, 13Cramer, Jim, 166Crocs Inc., closing gaps, 210Ddaily returns, 76Darden Restaurant, 185, 190data, 43-45Day 0, 10Day -1, 10Day 1, 10disjointed candles, 17down gaps, 221moving averages, 147volume and, 125, 129downgap side-by-side whitelines, 30EElder Force Index, 122elections, gaps, 49Electronic Arts, 64Endeavour Silver Corporation, 191Equity One, 193Ericsson, collapsing doji star, 35ex-dividend gaps, 8Exelis Inc, 191exhaustion gaps, 6extreme values, 89, 93-94Ffalling windows, 19Finisar Corporation, 191frequency of gaps, 46-50, 54Frontier Communication, 185Ggap day candle color, 108-109gap down, 3gap trading, market movements, 194-202gap up, 3gapping doji, 32gapping side-by-side whitelines, 30-31gaps, 1, 4, 10, 1229/11, 49breakaway gaps, 4by industry, 65-66closing, 205timing of, 206-207, 211, 214common gaps, 8company-specific events, 50continuation strategies, 13down gaps, 221elections, 49ex-dividend gaps, 8exhaustion gaps, 6frequency of, 46-47, 49-50, 54231Indexfuture of, 220gap day candle color, 108-109high gap days, 159-160, 163,171-174, 224news summaries, 165-171trading, 174-176, 179-182, 185-187, 191-195index membership, 61-63liquidity, 45-46measuring gaps, 4moving averages, 149-157opening gaps, 8-10previous day candle color,109, 112-114representing, 10reversal strategies, 13runaway gaps, 4-6size of, 56-61suspension gaps, 8trading, 13-14up gaps, 88, 221, 223volume and, 124-125, 128-129down gaps, 125, 129measuring, 135up gaps, 131-132, 136Gartley, H. M., 121GlaxoSmithKline, 59GM, 166Goodrich Corporation, 182, 184Granville, Joseph, 122HHasbro, 37-38Herbalife (HLF), 125high gap days, 159-160, 163,171-174, 224news summaries, 165-171trading, 174-176, 179-182,185-187, 191-195Hot Topic, Inc., 211Human Genome Sciences Inc., 59Huntington Bancshares, gaps, 1IIBMgaps, 65volume, 122index membership, gaps, 61-63industry, gaps, 65-66ITT Corporation, 191J KJack in the Box, closing gaps, 214Jammin Java Corporation,price movements, 116-118232IndexJapanese candlestick charts, 17Johnson & Johnson, candle-stick charts, 17Kristy Kreme Donuts, 25-26LLehman Brothers HoldingCompany, 59liquidity, gaps, 45-46luck, 77-79Mmarket-adjusted returns, 82-89market caps, 61market movements, gap trading, 194-202markets, high gap days, 159-160, 163, 171-174news summaries, 165-171trading, 174-176, 179-182,185-187, 191-195Markowitz, Harry, 80Marley, Rohan, 116McDonald s, opening gaps, 8measuringgaps, 4volume, 135Merck, volume and gaps, 128MineFinders Corporation, 191Modern Portfolio Theory, 80Money Flow Index, 122Monsanto, closing gaps, 211moving averagescalculating, 140-144categorizing, 144down gaps, 147gaps, 149-157up gaps, 144NNetlist Inc., 149moving averages, 151-152Newmont Mining Corporation, 191News Corp Ltd., 63news summaries, high gapdays, 165-171Nison, Steve, 19Norgate Investor Services, 43Novagold Resources, 187, 191OObama, President Barak, 166Omnicare, 193Omnivision Technologies, 185On-Balance-Volume (OBV), 122233Indexopening gaps, 8-10Optimer Pharmaceutical, Inc., 103PpatternsBlack-Down-Black, 112Black-Down-White, 112Black-Up-Black, 112candlestick patterns, 26abandoned baby bottom, 39abandoned baby top, 37collapsing doji star, 34downward gap tasuki, 27gapping doji, 32gapping side-by-side whitelines, 30-31tasuki, 27, 29two black gapping candles, 32upward gapping tasuki, 27Down-White-Down, 112White-Down-Doji, 113White-Up-White, 112Pearson, downward gap tasuki, 27Premium Data, 43, 65previous day candle color, gaps,109, 112-114price, 121price adjustments, 44price movements, 77examples of, 114-118profitable trading examples,94-105RRBS, 34-36Resmed Inc., extreme values, 89returnsannualized returns, 76calculating, 71-76daily returns, 76luck, 77-79market adjusted returns, 82-89profitable trading examples,94-104risk, 79-82reversal strategies, gaps, 13reversals, 173rising windows, 19risk, impact of, 79-82Royal Gold Inc., 191runaway gaps, 4, 6running windows, 19234IndexSSeagate Technology PLC, 64September 2, 2011, 191Sharpe, William, 80Silver Wheaton Corporation, 191simple moving averages, 140size of gaps, 56-61software, 43-45Sprott Physical Silver Trust, 192suspension gaps, 8TTaro Pharmaceutical, 50tasuki, 27-29technical analysis, 219Temple Inland, 192timing of closing gaps, 206-216total gaps, high gap days, 159-160, 163, 171-174tradinghigh gap days, 174-176, 179-182, 185-187, 191-195how to use gaps, 13-14with windows, 39-41TravelZoo, 61two black gapping candles, 32UUnisys Corp., extreme values, 89-91Universal Display Corporation,98-101up gaps, 88, 131-132, 136,221-223moving averages, 144upgap side-by-side white lines, 30upward gapping tasuki, 27Vvalues, extreme values, 89, 93-94VIX, 163volatility, VIX, 163volume, 121-122gaps and, 124-125, 128-129down gaps, 125, 129measuring, 135up gaps, 131-132, 136volume size, 132WWal-Mart, 61White-Down-Doji pattern, 113White-Down-Whitepattern, 112235IndexWhite-Up-White pattern, 112windows, 17-19as support and resistance,candlestick charts, 20,23-25candlestick patterns, 26abandoned baby bottom, 39abandoned baby top, 37collapsing doji star, 34downward gap tasuki, 27gapping doji, 32gapping side-by-side whitelines, 30-31tasuki, 27, 29two black gapping candles, 32upward gapping tasuki, 27closing candlestick charting, 20trading, 39-41X-Y-ZXylem Inc, 191

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