Gap Fill Psychology of Market Participants
I know of a lot of traders who only trade gaps due to their high predictability. Whether the move is up or down, the emotions of trapped traders are the same.
If you are part of the range that is trapped, you are only thinking about one thing, how do I exit this trade with as little loss as possible?
The graph above shows that there are too many people trapped above to fit into one small candle. As soon as the price approaches the range, those willing to take a bigger loss get on the life boat first. Those who are holding out to break even continue to hope that the price will go back into the range. When they realize that the price is not coming back into the range, that's when their emotions kick into to hyper drive and they realize the price may never come back into the range.
The thoughts are: This is a scam! Why does this always happen to me! Of course the price would reverse here, I have the worst luck! OMG what if this is the start of a crash!
I usually don't post ideas on gaps, but below you can see the gap idea that I posted for Danaher, a company that made a COVID test that produces results in under 4 hours. The price came right back down to the gap and reversed. Sometimes gaps fill, and sometimes price only reaches the tip of the gap. Two very distinct areas to set stop losses for your trades.
If you are part of the range that is trapped, you are only thinking about one thing, how do I exit this trade with as little loss as possible?
The graph above shows that there are too many people trapped above to fit into one small candle. As soon as the price approaches the range, those willing to take a bigger loss get on the life boat first. Those who are holding out to break even continue to hope that the price will go back into the range. When they realize that the price is not coming back into the range, that's when their emotions kick into to hyper drive and they realize the price may never come back into the range.
The thoughts are: This is a scam! Why does this always happen to me! Of course the price would reverse here, I have the worst luck! OMG what if this is the start of a crash!
I usually don't post ideas on gaps, but below you can see the gap idea that I posted for Danaher, a company that made a COVID test that produces results in under 4 hours. The price came right back down to the gap and reversed. Sometimes gaps fill, and sometimes price only reaches the tip of the gap. Two very distinct areas to set stop losses for your trades.
My goal is to find the best risk:reward setups. For instance, if you risk $1,000 at a chance to make $5,000, you can afford to be wrong 4 out of 5 times and still not lose money. I hit my targets over 50% of the time.
