A gap is a hole in prices which occurs when the current day’s high is below the previous day’s low or when the current days low is above the previous day’s high. Gaps indicate a sudden change of direction and, if left unfilled, can hint toward a major price reversal. Until filled, the gap serves as a magnet, drawing prices back into the gap, especially when prices are nearby. If a gap is “filled” by subsequent price action, it tends to lose its predictive power.
Walt Breitinger, Paragon Investments, Inc.
DBA Breitinger & Sons, Commodity Futures Brokers