VIX GAPS COULD NOT BE EASIER!Here we have another gap, and these really seem to play well on the VIX! Not guaranteed but something to watch. DXY is holding strong as well ;) Not financial advice, DYOR
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Gaps are spaces on a chart that emerge when the price of the financial instrument significantly changes with little or no trading in-between.
Gaps occur unexpectedly as the perceived value of the investment changes, due to underlying fundamental or technical factors.
Gaps are classified as breakaway, exhaustion, common, or continuation, based on when they occur in a price pattern and what they signal.
How to Play the Gaps
There are many ways to take advantage of these gaps, with a few strategies more popular than others. Some traders will buy when fundamental or technical factors favor a gap on the next trading day. For example, they'll buy a stock after hours when a positive earnings report is released, hoping for a gap up on the following trading day. Traders might also buy or sell into highly liquid or illiquid positions at the beginning of a price movement, hoping for a good fill and a continued trend. For example, they may buy a currency when it is gapping up very quickly on low liquidity and there is no significant resistance overhead.
Some traders will fade gaps in the opposite direction once a high or low point has been determined (often through other forms of technical analysis). For example, if a stock gaps up on some speculative report, experienced traders may fade the gap by shorting the stock. Lastly, traders might buy when the price level reaches the prior support after the gap has been filled. An example of this strategy is outlined below.
Here are the key things you will want to remember when trading gaps:
Once a stock has started to fill the gap, it will rarely stop, because there is often no immediate support or resistance.
Exhaustion gaps and continuation gaps predict the price moving in two different directions—be sure you correctly classify the gap you are going to play.
Retail investors are the ones who usually exhibit irrational exuberance; however, institutional investors may play along to help their portfolios, so be careful when using this indicator and wait for the price to start to break before taking a position.
Be sure to watch the volume. High volume should be present in breakaway gaps, while low volume should occur in exhaustion gaps.
