Day Trading Gaps and Windows transcript

all right so in this episode we're going to talk about gaps and windows on both daily charts and intraday charts this again is another episode in this multi-part series on technical analysis and how to read stock charts especially for day trading but again not exclusive to day trading if you're a short-term investor or swing trading you can certainly apply gaps and windows to those strategies as well because we're going to talk quite a bit about daily charts now a reminder as always these levels are critical and they work well because so many traders respect this language of technical analysis this is why you're learning this language because there are very clear buy and sell signals on the technical analysis inside the charts and if you're missing them you're both missing opportunities and potentially positioning yourself to walk right into a sell signal without realizing it and that can be a quick and unnecessary loss so let's talk first about how a gap is formed so gaps are very common on daily charts of stocks and the way they're formed and i'll switch to the white board here is buy a stock uh trading one day let's say i'll just draw like a bunch of days here just let's just pretend these are regular candlesticks and then the next day the stock has terrible news and it opens down here so the gap on the chart is from here to here now technically each one of these levels if it opened higher than the previous day is a gap so a gap is an opening higher or lower than previous day okay so it's that we can have stocks that gap up we can have stocks that gap down but what ends up happening on the daily chart during a gap and you can see this is an example right here of a chart with the below highlight in the gap the gap down you have this big space and the way i look at a gap like this is that this is an area where you have literally no resistance and you don't have any support because it just broke through that whole area so we have a strategy that's called gap fill now the gap fill strategy is when we look at a stock that's gapped down and then starts coming back up here we look at this potential area from here to here this is gap fill way up here so as it starts to break into the gap it has no resistance on a technical level until this area here unless you have a level such as your 200 moving average that's gonna cross in the middle and if you have that then that's your first level of resistance at the 200. if you can break through that then you've got room up to here and you've got gap fill so these are gaps on the daily chart gaps are extremely common now what's a little bit different is when we have what are called windows a window on the daily chart is when you have uh let's see so we'll do this trying to think so we'll do a couple candles going up here and then a couple candles we'll have one that drops down and then two more right here okay so now as this stock starts coming back up right here it has not a wind not a gap but a window from here until here okay so this window is formed by a very long candle so there is once you're into this area you have no resistance and no support i say that but i'll hesitate for one second because it's possible that if you look if this is a daily chart if you looked at this candle intra day on the five minute it's possible that inside this candle that there was a very high level of support you know maybe halfway through the candle before it rolled over again so now as we come back up on the daily chart it's going to look like we do have room all the way back up to this level here but if you look at this on a five minute level a five minute time frame you may see that we're gonna have possible resistance here it's also possible just like with the other example that we would have a moving average issue right in this area something like this that we would be running into a moving average which would create resistance so let's let's switch back over to our charts here because on this example you can see how although we have a large gap we have the 200 moving average here at 652 and we have another moving average here another one here and another one here so this ends up creating resistance on this chart and it really ends up making it so it's not really that great of a chart even though you do have a gap it's not that great in the chart this is another example of a chart that has a gap it opened uh higher and the gap i draw is the actual space where there was never any price action some people might drive from the close to the open but i wouldn't do that because you have the low and you have the high here and so to me this blue area is the actual gap so if this stock starts to come down we would look to see if it breaks this low it has no support until right down here which gives you a little gap area where you could have a bit of a free fall the stock could drop very quickly or if we're trading to the long side we're looking at stocks where if it comes back up right through here for instance if it can get above this level we have gap fill up to here which means the stock could move very quickly so when you combine gaps and windows with what you already uh know if you've been watching through this multi-part episode or multi-parts part series on technical analysis you already know about ascending and descending and horizontal support and resistance lines and you certainly already have probably an understanding of multi-candlestick patterns such as an abc pattern a flat top breakout or a bowl flag so we start to combine all of these different components to technical analysis that's when we can start to form a really strong bias on a stock the reasons that we like it and that we're bullish or the reasons that we don't like it and again reminder that this type of analysis is really only valid on stocks that are experiencing a high level of relative volume very high relative volume typically the result of breaking news typically a stock that is really popular is one of the leading gainers on the day you're trading it these the stocks are going to respond the most clearly to these significant levels a stock with low relative volume is not going to really trade very clearly around these levels it probably wouldn't even get into the gap at all it might come up to it and then fade it's just not going to have the momentum behind it to really get into this level so you might see oh we've got gap fill potential but that potential will most likely not be realized if you're applying this type of analysis to the wrong type of stocks so let's go back over to our chart here and look at a few more examples so this is an example of a window so the window here goes from 877 all the way up to 1950 so that's a very large window but as i said it's possible that during this candle at some point during that day that it might have had a lot of support around you know 1250 or something like that before selling off so then as this comes back up we might say we could have an issue around 1250. now the second line that i have drawn at 877 this is just the bottom of the area that is the window the bottom of the window right here so you might look and say oh is this going to be resistance and it could be because as you come into either gap fill or a window you can have some resistance there as traders who might be in from a lower level would take profit before risking that it hits that level and rejects all right so let's look at another example here this is a stock that has sold off quite a bit and it does have a number of gaps and windows as it comes back up however because we have this issue with our moving averages here it doesn't really to me feel like the type of stock that's probably going to open up in a big way most likely you do have traders that are still underwater from this last move here and so as you come back up you're probably going to run into resistance levels as some of those traders are selling their positions so just for instance if you were someone who bought ten thousand shares at six and then it drops to two bucks you might have added another 20 000 shares at two to bring your average cost down to like four dollars so if it comes back to four you might have an order just to sell the whole thing break even and not have to take you know a thirty forty thousand dollar loss on this trade so as you start to come back up you're going to run into these walls which are typically bag holders with orders that are already out to unwind the position so it's not as common that you'll have that quick parabolic move as it breaks into a gap or a window as you would on a stock that's just substantially more bullish this is one where it has been at this low level for quite some time it finally breaks through and you get almost a perfect example of gap fill now these are the types of charts we have so many examples of this that we go through where you see examples of gap fill examples of windows but i just wanted to present enough to give you an idea of what you need to start looking for if you're out there doing your own technical analysis and trying to understand these levels now again this is not a strategy this is just helping you learn the language of technical analysis if you want to learn more about strategy down below i'll put a link in the description where you can download my download my micro pullback pdf all right so the micro pullback pdf is actually a strategy document and that outlines the strategy that i trade of buying micro pullbacks because what we often see is as a stock squeezes up if we have this big window it squeezes up right here gets into that window pops up and then it pulls back just for a moment before ripping higher so that micro pullback is one of my favorite ways to buy a strong stock and the way i find it is on my high a day momo scanners so i find these stocks on my scanners i get the it gives me notification boom boom boom the stock is moving up right now i do my due diligence i see the daily potential and i buy the first pullback for the next leg up so check out the micro strategy pdf if you want to learn a little bit more about strategy and if you want to keep watching uh episodes in this series on technical analysis i'd be thrilled to have you do that so i hope you're enjoying these i hope you hit the thumbs up i hope you're subscribed to the channel and you can continue on to the next episode i'll put a link right here to the next one and i'll put a link to one of the most popular ones right here