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Beat the Street: A Trader's Guide to Consistently Scoring in the Markets by Adrian Manz

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Chapter 6. Gap Extensions

THERE IS MUCH by way of ‘conventional wisdom’ regarding reaction moves the day after a breakaway gap. Many traders avoid any position in the direction of the gap, feeling that price action will be choppy and that there is a virtual certainty that the void will fill in over the course of hours or days. Traders will frequently attempt to fade the move in the hope of catching the contra-extension for a profit. The gap-extension pattern seeks to capitalise on those instances in which these individuals are wrong and price continues to advance or decline in the direction of the gap. When this pattern works, it generally hands over quick profits. When it fails, it usually either does not trigger or results in a small loss. ...

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