Power Of Gaps I Part 1 I Tuesday Technical Talk I Vishal B Malkan

Summary

In this session of Tuesday Technical Talk, Vishal introduces the concept of trading gaps, specifically gap up and gap down, which are often seen as intimidating for traders. He dispels myths, emphasizing that gaps can work in a trader’s favor if approached with the right system. The video explains how gaps function as support and resistance, drawing from Japanese candlestick theory. Vishal elaborates on the psychological factors behind market reactions to gaps and shares tips on how to use these gaps for low-risk entries in trading. He also teases more advanced gap strategies to be covered in part two of the series.

Takeaways

• 😀 Gaps (Gap Up and Gap Down) can be in your favor if traded with the right system, breaking the common myth of only causing losses.
• 😀 Negative experiences with gap downs often stick in people's minds, but gap ups also occur and can lead to profits.
• 😀 The concept of a gap filling isn't always accurate—many gaps don't fill, especially those that align with the trend.
• 😀 Gaps act as support and resistance levels due to human psychology: those who missed out on a trade will often buy or sell at the gap level.
• 😀 Mark gaps between bodies (closing price to opening price) for accurate gap analysis, rather than between shadows.
• 😀 Gaps create 'windows' (as termed in Japanese candlestick theory), which can become powerful support or resistance zones.
• 😀 Gaps in trending markets take longer to fill, while those against the trend tend to fill quickly.
• 😀 The psychology behind support and resistance at gaps is tied to how traders react to past positions (e.g., those who are stuck in losses may exit at break-even).
• 😀 Identifying different types of gaps, such as breakaway gaps, runaway gaps, and exhaustion gaps, is crucial for advanced trading strategies.
• 😀 Consistent practice and marking gaps, especially on daily charts, can help you make better, lower-risk trading decisions.
• 😀 The 'Unlock the Money Secrets' event aims to help traders at all levels understand fundamental concepts like gaps and psychological factors in trading, and it's open for pre-registration.

Q & A

What is the primary topic of the video?

The video focuses on understanding how to trade gaps in the stock market, specifically discussing the concept of gap up and gap down, their psychological implications, and how to use them effectively in trading.

What is a common myth about gaps in the market that the speaker addresses?

A common myth the speaker addresses is the belief that gaps will always fill, meaning that a gap up will eventually come back down and vice versa. The speaker clarifies that this is not necessarily the case and that understanding gaps requires deeper knowledge.

What is the speaker's stance on the fear of trading gaps?

The speaker explains that many traders fear gaps because they might face losses if they take positions before the market opens. However, they emphasize that if the right system is followed, gaps can actually work in favor of the trader.

How does the speaker recommend marking a gap on a chart?

The speaker advises marking gaps based on the 'body to body' method rather than the 'shadow to shadow' method. This involves marking the gap between the opening price of one candle and the closing price of the previous candle, which is considered a more reliable way to track gaps.

What role do gaps play in market psychology according to the speaker?

Gaps play a crucial role in market psychology because they act as support or resistance levels. When the market moves back towards a gap, it triggers actions from traders who either missed the move or are trying to break even on previous positions.

What is the significance of 'windows' in the context of gaps?

The term 'windows' is used in Japanese candlestick analysis to describe gaps. A gap up is called a 'rising window,' while a gap down is referred to as a 'falling window.' These gaps are significant as they often act as strong support or resistance levels, depending on the direction of the market.

What does the speaker say about gaps working as support or resistance?

The speaker explains that gaps often act as support in an uptrend (gap up) and resistance in a downtrend (gap down). This happens because traders who missed the initial move often re-enter the market at these levels, reinforcing the support or resistance.

Why does the speaker emphasize marking gaps as body to body and not shadow to shadow?

The speaker emphasizes the body to body method because it focuses on the actual price movement between the opening and closing of the candles, which is considered a more reliable indicator of where gaps occur. Shadow to shadow might include extraneous price movement that is less relevant.

What is the speaker’s opinion on incomplete knowledge regarding gaps?

The speaker warns that incomplete knowledge about gaps can lead to poor decision-making, such as shorting a gap because of the assumption it will always fill. Understanding the types of gaps and their behavior is essential to avoid making mistakes and suffering losses.

What does the speaker suggest about the longevity of gaps as support or resistance?

The speaker mentions that some gaps can act as support or resistance for years, reinforcing the idea that gaps are powerful market indicators that, once marked, can remain significant over long periods. This requires consistent practice to understand and apply effectively.