Wednesday, April 22, 2009

Gartley's Gap Theory Explained

Bobbit Steven G. Futures December 2008

Retrieved From: 27 Apr, 2009.

Bobbit's goal in the article to explain to traders how to deal price gaps in the stock market. Gaps in prices of a stock happen when "the current bar opens above the high or below the low of the previous bar." The term "gap" is often used as a verb throughout the article. Human emotion manipulates markets and cause frequent "gapping."

Bobbit explains the "natural sequence of gaps" in a Gap Succession Chart. The sequence begins with the "breakaway gap" which indicate a change in pricing trends of a given stock. Next is the "measuring gap," according to Bobbit who cites H.M. Gartley measuring gaps are the most difficult for an analyst to spot but also the most important because spotting them can lead to better predictions of where the price is going to go. Next is the "exhaustion gap" which according to the article is the easiest to spot because they happen during significant "up or down" moves of a stock's price. Bobbit concludes the article with several mathematical equations to help determine where gaps may occur while charting prices.

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