Candlestick Trading Blog
Using Candlestick patterns as a guide, traders can identify and profit from trading a breakout gap in a stock. In general terms a breakout gap is a discontinuous pattern in stock charting. It occurs when the prices of stocks break out from a narrow or congested range of trading. Typically the high stock price for the day and the low stock price for the day move gradually up and down day by day. A break out gap will be when the stock price seems to jump out of the daily pattern, either up or down, out of consolidation pattern. The common experience when a breakout gap occurs is that the stock will move up rapidly and substantially. Those who learn to read Candlestick pattern formations will be able to identify that pattern and will typically be able to trade profitably. To learn both Candlestick analysis and specific trading patterns an excellent idea is to take an online basic stock market training class coupled with the Candlestick forum boot camp online.
There are several types of gaps including runaway gaps, exhaustion gaps, and common gaps, as well as breakout gaps. In each case stock prices move quickly from a relatively continuous progression up, down, or sideways to a discontinuous jump up or down. In each case the price jumps leave gaps on stock charts. Those interested only in long term investing can really dislike gaps, unless the investor also is astute in technical analysis of stocks using Candlestick chart analysis. Although the long term investor will not buy stock and sell stock frequently he or she will be pleased to pick up a stock just before it goes up substantially in price. The trader, who routinely uses Candlestick charting techniques, will see a breakout gap and realize that he or she may just be in trader heaven and ready to make a nice profit. Identification of a breakout gap not only helps stock traders but will be useful to stock options traders as well. An options trader who indentifies a breakout gap and reliably predicts a rise in stock price in a timely manner may be able to profit from buying calls on the stock in question. The difference in buying call options instead of the stock is that the trader will hold the option but not the obligation to buy. If the stock goes up in price as anticipated the trader will exercise the option for a profit. If the stock does not go up in price or goes down then the trader will only lose the price of the premium paid for the option. In general, the more rare the occurrence of this kind of gap the more reliable it is. For example, in a volatile stock market, daily gaps in stock price charting may be rather common. These, daily, gaps are less predictive than gaps that occur over a week. More so, gaps over a month, or a year can be substantially more predictive of large and rapid price moves. Thus the trader who is astute in reading a breakout gap may be able to profit substantially from the timely purchase of the stock in question.Online Stock Market Reviews presented live via the internet by Stephen Bigalow |
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