Say Something Nice - Friday, page-68

Hi: Yes, there are different general articles on price gaps that one can read up on if of interest, such as this one: Gartley's Gap Theory:

http://www.futuresmag.com/2008/11/17/gartley’s-gap-theory-explained

It's quite big subject, and one that probably requires more than one post, but basically, this SPI futures contract is an interesting little devil, in that, she is open 24 hours a day, but not much volume goes through, so when you watch the market depth, you can see the gaps forming there, and then you have the hitter / sitter situation, where somebody is sitting in the market depth, either to put on a position, or get out of a position, and the hitter hits the bid, or goes in at market, taking out the sitters and there could have been a hole in the market depth, so it could have been buyers at 5000, 5002, 5004, and the hitter takes out the whole lot, leaving gaps at 5001, and 5003, and then due to mean reversion, the price will go back to that level, filling the gaps. It's a SPI thing, which doesn't happen much on high volume contracts. The gaps occur around levels and technical areas, so if you were to compare say Fib levels, and the gaps, you can see the correlation. I can understand the 'oh yeah, the gap will fill' kind of thinking, but what I have been trying to show people via my annoying posts, is that there is a way to extract money from the devil, in a short period of time. You just have to backtest it, and then set your trades. It has a 90 pct success rate, so you just need to manage the other 10 pct, and watch it carefully. cheers