A gap is when a stock's price jumps between trading sessions, usually because of earnings or news. Gaps can keep going in that direction or reverse to fill back to where they started. NVIDIA recently gapped up, showing how strong moves can follow.
The gap. Imagine you're watching a race on TV and all of a sudden there is a 1-second lag and racer number 19, which was last, now becomes first. That sudden jump or fall is like a gap in trading. A gap is when the price of the stock makes a big leap or a big drop in between 2 points in time, basically 2 candles, instead of gradually changing. This then creates a gap between the candles. Now gaps most of the time happen between trading days or trading weeks. And the reason for that is because, as I mentioned earlier, we have something called aftermarket trading and pre-market trading, and most of the brokers don't display the price action that occurred in those sessions. Now, there are two types of gaps, which is gap up and gap down. A gap up is when a stock price opens higher than its previously closed. And a gap down is the complete opposite, where the stock opens lower than it's previously closed at. So for example, let's say a stock closed at $100 and opened the next day at $105. That case, it's going to be a gap up. And if the same stock opened the following day at $95, it's going to be gap down because it has opened lower than what it previously closed at. But why and how gaps happen? Now, gaps happen for various reasons. It could be because a lot of people suddenly want to buy the stock or sell the stock because it released a good or bad earning report overnight. And as we know, things happen in the market after it closes for us. Then when the stock market reopens, the stock price is not going to be priced the same. It's going to be priced based on the new information we now have, and of course supply and demand. Because as we know, if the company releases a good report or good news, more people will want to buy and will be willing to pay higher prices. And if the company releases bad news, the other way around. And lastly, of course, how can we benefit from these gap-ups and gap-downs? Now, after a gap, a lot of things can happen. One of them being, after a gap-up, the stock might continue to rise. which will signal a strong uptrend, and then we can just join and enjoy the ride. A good recent example for that can be NVIDIA. Another common situation is the stock price will go down in order to fill in the gap, which basically means the stock will go back to the price it started the gap at. In our example, it was $100. Now, of course, these scenarios can happen with a gap up and a gap down, so do keep that in mind.
The BlueSky Setup: The Strategy That Has Made Me Over Half A Million (INSANE VALUE)
