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Technical Analysis Based Trading Strategy: Gap Fills

DAX Gap fill on 8 January 2018

A gap occurs due to a change in perception of value while market is shut – this is often the result of a piece of news or a correlated market continuing a move (e.g. S&P rising whilst DAX is shut). The gap becomes a very clear reference on a chart showing strength or weakness in a market. As a result, any move to fill the gap is often met with buying on a gap up, selling on a gap down.

So, the trade seems quite clear: when the gap fills, trade in the direction of the gap, but why is it that the first gap fill (above) results in a trend day and the second in a range day and indeed why did either gap fill produce a move higher? The answer: Context.

Context comes from an understanding of how a market has acted recently and also what the market has done in the immediate run up to a specific entry. The second gap up follows three days of strong gains and is analysed in the following AXIA daily debrief. A grasp of context is what differentiates your ability to learn a set up and learn to trade.

Technical Analysis is one of the foundations of trading and is taught early on in our AXIA Futures 8-week Intensive Career Programmethe most comprehensive programme in the industry, which is based​ ​upon​ ​skill​ ​development​ ​within​ ​the​ ​proprietary​ ​futures​ ​trading​ ​environment.

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