A recent paper-trade, Redux

Last Wednesday, I posted the results of my swing-trade in GS. this is a redux of that trade with an eye toward the Technical Analysis phenomenon of "filling the gap." My recent discovery of Austin P's blog at coiledmarkets.com has re-awakened my interest in this market tendency. He emphasizes it in his analysis.

(Please note that he is selling a subscription/service and you should keep that in mind if you choose to visit there. I am not a subscriber and have no intention of signing up)

With this in mind, I revisit my GS trade mentioned earlier. The left chart is a screen shot of my trade timeframe but extended slightly to include later parts of the day that I closed out my paper-trade. (For chart simplification I have removed all the lines which indicated my blended entry prices and my exit point). The lower Magenta-colored line indicates the close on September 10th before the GS gap open on September 13th. On the 13th, GS stayed up above the gap. On the 14th, it gapped down and then traded in a range all day. However, on the 15th traders gapped it down again, taking it to the point marked by the first magenta arrow... Interestingly, the very point it had to hit to "Fill the Gap" from the 10th-14th of September! From there, it touched the same spot one more time a short time later then popped up for the rest of the day. Where did it go? It rose to fill the gap from the day's open, indicated by the second magenta arrow on the chart. It rose a bit above the gap fill point later in the day before dropping again on the 16th (not pictured on the chart).

Austin P pays particular attention to traders' proclivity to fill gaps eventually, using it increase his probabilities of nicely sized winners.

I think it would be a misuse of this idea to "predict the future behavior of a stock." But what study of this phenomenon can yield is a view into the collective mind of traders and give us another "inflection point" to watch; to learn from the behavior of price as it approaches these gap fill areas. They seem to provide support and resistance spots of particular interest to day-traders and swing-traders alike.

Watch and learn.