Question re: Gaps

I'm reading conflicting information. Some are saying the gap lines should be drawn between the closing of one candle and the open of the next (as in example A below); while others are saying that the gap lines should be drawn between the bodies themselves (as in example B ).

Which is the preferred method? Thanks.



I believe Darcy mentioned a book on gaps in one of her messages. I believe I'll try to read it later when I get some more time.

(hrm...had to edit my post as I didn't realize that my B followed by a parenthesis would automatically turn into a smiley.)



Edited 1 time(s). Last edit at 05/20/2013 03:54PM by robert.

Example B is the correct one.

Example B is the way I look at gaps also.

thanks, fellas.

Some people also draw the lines from the wicks and not the bodies. The gap has to be closed by an actual body closing above/below the gap line though.



Edited 1 time(s). Last edit at 05/21/2013 04:19AM by eternal sunshine.

I think the preferred method is one that works best for you. Here you see how investopedia measures a gap. However the method I like is from candle body to candle body.



If I then take your example of candle B with all three lines that you have on your example and then take the line segment that you have on your charting tools; I would have 2 segment lines that measure the gap. One line would be the half gap and the other would measure then full length of the gap. You can then test the possible next move based on the distance and direction of the gap.

Use aily chart of NFLX to see how it works. This was how I knew NFLX would go up and how I made $6,000+ on the next gapup on earnings.

PS the book I mentioned is good but has way too many technicals to be of an over all benefit. Read gaps in TAD book is best!

Quote
darcy2
PS the book I mentioned is good but has way too many technicals to be of an over all benefit. Read gaps in TAD book is best!

Thanks. I just got the TAD book and skipped to chapter 12 to read about the "E" chart everyone has been talking about. I'll go back for gaps next. I won't bother with the other book since you don't recommend it.

I'm assuming that this is the gap that you are talking about:



That's a really nice move, Darcy. Congrats on a great trade. I'll definitely be reading up on gaps.

@robert

Yep I remained in the trade as it went through earnings based on the action of the stock on the GW daily chart. The first gap up gave me the measure of the next move.

Now would I trade it through earnings on a possible 3rd gap up? Not on your life. Why? Generally on a 3rd gap up the stock will turn down and it can turn down off the open. For me that would be riskier. I am not saying that it would go down. I am saying a 3rd gap up (on a daily) is riskier.