Gaps Understandings and how to use it for stock trading?

There are four types of gaps :

1.Common Gap
2.Breakaway Gap
3.Runaway
4.Exhaustion

Gaps are formed on daily bar charts where no trading has taken place. In an upside gap for example, a gap would be formed if the open is higher than the previous bars high (Murphy definition).

A downside gap would be formed if the open was lower than the previous bars low. These initial gapping moves form true gaps when at the end of that trading day the gap is left unfilled. So in an upside gap, todays low is higher than the previous bars high, in a downside gap todays high is lower than the previous bars low.

Common myth: All gaps must be filled. This a very tempting intra-day strategy but is strictly speaking, not true.

Common Gap
This type of gap generally occurs in the middle of trading ranges or in thinly traded markets. Chartists tend to ignore the common gap but futures traders are always keen to use the common gap with the following points in mind:
1.Every gap must be filled - which remember is not strictly speaking true
2.The gap high and low and even the close and open can be used as support and resistance levels.
3.Common gaps offer little to trend analysis or confirmation of a pattern breakout or reversal and are usually ignored by chartists.

Breakaway Gap
This type of gap can occur at the completion of a significant pattern. A breakaway gap gives a strong signal that the market has started a new trend or phase of a trend. This gap has more significance if it is left unfilled, and should remain unclosed to have validity. On an upside gap, the high of the previous bar (the gap low) is considered to be strong support. On a downside gap the low of the previous bar is considered to be strong resistance.

1.Breakaway gaps are seen as patterns are completed and stops are triggered, the market may be receiving a shock.
2.Breakaway gaps can be used as support or resistance as orders will be left at these levels to cut losses or initiate trades.
3.Once the breakaway gap is confirmed (the gap holds on a test) the trend move should be strong.

Runaway Gap
Once the trend is underway prices may leap forward to form a gap or even a series of gaps. This may have some strong volume associated with it. The runaway gap offers the same support and resistance studies that the breakaway gap does.
1.The runaway gap sometimes occurs in the middle of the trend move and can be a measuring gap.
2.The runaway gap occurs as the trend gathers more believers, new funds flow into the market to re-enforce the trend.
3.The runaway gap also occurs as stale longs or shorts cut their positions and take their losses. This can be on the back of news, shocks to supply/demand, or simply too much pain in existing positions.Exhaustion Gap

Exhaustion Gap
Once the trend is well established and most targets/objectives have been met, an exhaustion gap may be seen. This will appear like another runaway gap, but the price action will be critical. Basically, once the gap is seen, but is then filled and closed, the exhaustion gap could be in place.
1.Exhaustion gap is seen at the end of the trend move.
2.Exhaustion gap is confirmed as the gap is filled and closed.
3.Exhaustion gap signals a trend change


Island reversals
Island reversals occur when the market gaps higher with an upward exhaustion gap (or lower with a downwards exhaustion gap), trades in a narrow range for a few days and then gaps lower again. This leaves an “island” of prices, surrounded by unfilled space and usually signals a trend reversal.

Opening Gaps are worth watching out for in intraday trading, but dont get too obsessed with them!!

Attend our 2-days 'Technical Analysis Workshop'.

Where we will coach you how to analyse these gaps and gain out of it in the real market situation.

STRESS MANAGEMENT

Stress management?

One need to manage business, industry, family etc., it is quiet meaningful why one need to manage stress? It looks very funny isn’t it? But in our today’s world we are in a position to even manage our stress. That is the trend of today. The whole world is talking about it. Earlier the western world is fonder of stress management and today’s in the east also talking about it. It is spread up everywhere. The cause may be of the vast industrial growth and the expansion and invasion of the western culture into the east. The active traders in stockmarket has to face and mange so much of stress.Here we thought of making them aware about stress and help them to overcome or manage it.

.
In the modern world where we are today is filled with so much of materialsitical comforts, which was never before experienced by another generation of the people who lived before. In that case we are the most advanced beings in terms of science and technology. we are the comfortable being materialistically on the planet earth, than the people who lived before. But when we put forth a question in front of us that – can we claim, we are the most comfortable, peaceful being internally, than the people who lived in the past? The answer is “no”, isn’t it?

.
It is why because, we in the process of accumulating our external well being we almost lost touch with our internal being, and hence this lacking we suffer in may ways and means; we do not know exactly what we are, and what is our capability and potentiality. We are some how living and do things mechanically. We are leading a kind of artificial life. Our life becomes very pseudo. And this is one of the major reasons in our today’s world situation, and stress is also one of those reasons, which is part and parcel of our today’s life.

.
It is very unfortunate to speak about stress in the country like India. Our ancients had great wisdom in each and every aspect of their life. They were all aware of the real life behind the pseudo. They are so rich by their culture wise and knowledge wise, awareness wise etc., and because of that they could live a life of contentment. A life, which is totally committed towards one’s being of the fullness. There was no need for them to manage stress or whatever. As the evolution start progressing slowly, slowly the knowledge of our ancient wisdom started fading away. And we lost touch with our own heritage and culture. This may due to the invasion of many western cultures and we start bothering about western cultures and fascinated towards that, which totally made us to limp. We now neither belong to the eastern culture nor belong to the western culture. We are caught in between. Now, we are in a fusion of cultures. We have not realized our own cultural richness. Once we start realizing we need not bother much about stress, tension, anxiety and all those psychosomatic ailments. Since our saints were great scientists. They had foreseen the future and designed our culture as a consealeded mechanism to protect any given life situations, effortlessly. Our culture habitats like worshipping, rituals, ceremonies, spiritual satsangs and festivals, fastings etc., have tremendous meaning within it. The whole of Vedas and puranas and Upanishads is all talking about how to be rich in and out. It is not just a novel to read and forget. In fact, it has to be inculcated with our being and cherished. Then, things will happen effortlessly that will lead to contentment.


WHAT IS STRESS?

If you say, “I feel stressed.” you probably mean you are feeling tired, irritated, overworked, exhausted, depressed, tense, disappointed, etc. infact, there is something definitely wrong, something negative in your life.

But stress is not just negative. We would be dead without stress. It is with us all the time in some measure, problems only arise when we have more or less stress than we want, or can cope with.

Stress is part and parcel of our life; infact stress is a survival mechanism that helped our Stone Age ancestor as well. But our today level of stress and other problems is more complex than our ancestor’s. May be we can call the stress is the necessary evil.

Stress occurs all the time to every one, and your stress level is healthy as long as there is a spring in your step. But when it crosses the limit beyond the danger mark: one stop enjoying what one does and start experiencing fatigue and anxiety. A person who does monotonous work usually suffers from low stress levels.

If you say, “I have temperature.” you do not mean that normally you never have a temperature, but that, on that day you have a higher temperature than normal.


DEFINITION OF STRESS:

1. STRESS is defined as an internal state which can be caused by physical demands on the body (disease condition, exercise, extremes of temperature and the like) or by environmental&social situations which are evaluated as potentiality harmful, uncontrollable or exceeding our resources for coping.
2. STRESS may be defined, as the combination of a) the demands placed on us that are perceived as threatening and b) demands that tax our resources in short, stress refers to a perceived threat we think may strain or exceed our resource.
3. STRESS can be also defined as, ‘the way your body responds to the demands of your life style’ i.e. the effect of wear and tear n your body.

So stress is nothing but that comes at us from all sides of our environment and hits us in different ways. Any event that places a demand on us or disrupts our life can be considered a potential stressor. For instance when you want to go for writing your final exams, you are waiting for a bus to reach you exam centre, the bus which suppose to come in time, has not yet arrived and you have stark choice to reach the exam hall in time through any other mode of transport, except that particular bus for which you are waiting. And this is the cause that makes you stressful.

.
Stress has many aspects and has various perspectives. Stress can be physical or psychological or both.hence, it is essential to understand where stress comes from, what causes it, what its effects on us are, all these aspects we have to consider before to find a solution or managing it. Now let us look into the types of stress.

What are the factors that may cause stress? There are many factors that cause stress, the major factors are such like heat, hunger, pollution, monotonous job, conflict, frustration, anxiety, excessive ambition, and so many other natural disaster like earth quake, tsunami etc.

Stressor

When the person is subjected to a stress-producing effect known as a stressor. The stressor can be of a challenge, pressure, stimulus, external influence, etc.

When one is stressed, the stressor is registered in the brain. The brain gives various parts of the body instruction for a chain of different reaction known as the stress reaction or stress response.
In our modern life style we are all constantly reacting with a stress response.

Dr.Bop Montgomery and Dr.lynette Evans, in their book ‘ you and stress’ list five major components of the stress process. It begins with stressors, which are factors that cause stress. It can be a fight with your beloved, your spouse, demands at the work place or home, or an unexciting job. Research has found that even uncertainty and lack of control over a situation can cause stress.

Brooding over the past and worrying about the future are no less stressful. Your thoughts, physiological processes, feelings and behavior are the other components of the stress process.

Types of stress

There are two major types of stress,
1.Eustress 2.Distress. Let us see each one of them what it is.

1.Eustress
Eustress is synonymous with health essential stress produced for e.g. by joy, or any kind of positive impulse, sensible recreational activities, sports practiced as a hobby, etc.

2.Distress
Distress is synonymous stress that has to be controlled, e.g. continuous mental or physical strain of any kind, anger, frustration, stages of tension seemingly without hope.


The effects of stress in various perspectives

We shall now look into the various perspectives of stresses. Stress is many-faced process that occurs in reactions to events/situations in our environment termed stress. A wide range of stimuli can potentially produce stress, but it appears that many events we find stressful share several characteristics.

1.They are so intense, in some respect that they produce a state of overload we can no longer adapt to them.
2.They evoke incompatible tendencies in us, such as tendencies both to approach and to avoid some object or activity.
3.They are uncontrollable –beyond our limits of control.

We will see the Effective stress mangement on the following posts.

Average Directional Index -ADX

Introduction
J. Welles Wilder developed the Average Directional Index (ADX) to evaluate the strength of a current trend, be it up or down.

It's important to determine whether the market is trending or trading (moving sideways), because certain indicators give more useful results depending on the market doing one or the other.

The ADX is an oscillator that fluctuates between 0 and 100. Even though the scale is from 0 to 100, readings above 60 are relatively rare. Low readings, below 20, indicate a weak trend and high readings, above 40, indicate a strong trend.

The indicator does not grade the trend as bullish or bearish, but merely assesses the strength of the current trend. A reading above 40 can indicate a strong downtrend as well as a strong uptrend.

ADX can also be used to identify potential changes in a market from trending to non-trending. When ADX begins to strengthen from below 20 and moves above 20, it is a sign that the trading range is ending and a trend is developing.

When ADX begins to weaken from above 40 and moves below 40, it is a sign that the current trend is losing strength and a trading range could develop.

Positive/Negative Directional Indicators
The ADX is derived from two other indicators, also developed by Wilder, called the Positive Directional Indicator (sometimes written +DI) and the Negative Directional Indicator (-DI).

In its most basic form, buy and sell signals can be generated by +DI/-DI crosses.

A buy signal occurs when +DI moves above -DI and a sell signal when -DI moves above the +DI.

As with most technical indicators, +DI/-DI crosses should be used in conjunction with other aspects of technical analysis.

The ADX combines +DI with -DI, and then smooths the data with a moving average to provide a measurement of trend strength. Because it uses both +DI and -DI, ADX does not offer any indication of trend direction, just strength.

The Directional Movement Index, DMI, is an effective and frequently used trend indicator. This system was designed by Welles Wilder Jr. and is made up of three lines:
1. The +DI indicates the up average.
2. The -DI indicates the down average.
3. The ADX, average directional movement index, shows whether a trend is in effect by smoothing the difference between the +DI and -DI.

The time periods most commonly used in the complex formula are 10 or 14 days.

According to Wilder the DMI should be used with the ADX as a filter.
A rising ADX line means the market is trending and a better candidate for a trend-following system.

A falling ADX line indicates a non-trending market.

Some traders also look for an ADX greater than 20 or 25 to confirm that the market is trending. When the ADX line starts to drop from above the 40 level, that is an early sign that the trend is weakening. A rise back above 20 is often a sign of the start of a new trend.

Signals
Generally speaking, the two main buy and sell signals generated by DMI are as follows:
* A buy signal is given when +DI crosses above the -DI line.
* A sell signal is given when +DI crosses below the -DI line.

An ADX below 25 is a strong warning to avoid trading.

Your Abilty That Matters

SIZE OF THE CANDLES MAY DIFFER
BUT THEY YIELD THE SAME BRIGHTNESS.
IT IS NOT THE MATTER OF YOUR POSITION,
BUT YOUR ABILITY THAT SHINES..!

Human Imagination Is The Source Of Creativity

" A well-directed imagination is the source of great deeds. "