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Technical Analysis of Gaps: Identifying Profitable Gaps for Trading by Richard J. Bauer, Julie R. Dahlquist

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Chapter 9. Closing the Gap

The gap must be closed” is an often-heard saying among traders. This saying, however, seems to be based on lore rather than on hard evidence. The idea is that a gap creates a void in the price on a stock chart, and there is a natural tendency for market participants to want to “fill the gap” so that no visual void appears on the chart. Even those who claim that a gap must be closed differ widely in their interpretations. Some think that the gap will close quickly, within a few trading days; others talk about this occurring over a much longer time period, perhaps even years.

The criterion used throughout this book to define a gap is that one day’s price action lies totally out of the range of the previous day’s price ...

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