Chapter 14
First Moving Average Gap Bars
Usually a 20 gap bar setup is followed by a test of the extreme, and the next test of the moving average probes even deeper. A bar may form that is entirely on the other side of the moving average. This is a moving average gap bar, and it sometimes can also be also a 20 gap bar pullback setup. A gap is a general term that simply means that there is a space between two points on the chart. For example, if today's open is above yesterday's close, there is a gap up. If the open is above yesterday's high, there will be a gap on the daily chart. A broader use of the term opens up other trading opportunities. For example, if the high of a bar is below the moving average, then there is a gap between that bar and the moving average. In a bull market or sideways market, there is a good chance that the market will move to fill that gap. Sometimes a bar will go above the high of the previous bar, but then, within a bar or two, the pullback continues down again. If the market again goes above the high of a prior bar, this is a second moving average gap bar setup, or a second attempt to fill a moving average gap in a bull trend, and the odds are excellent that there will be a tradable rally off this setup. Likewise, gaps above the moving average will tend to get filled in a bear trend or sideways market.
If there is a strong trend and this is the first moving average gap bar in the trend, it is usually followed by a test of the trend's extreme. This ...
