Chartsmarter Insights

Gap fills are a widely known strategy in the market that can be applied on both the upside and downside. The strategy is basically self explanatory, and gaps that fill to the downside after a very strong move gives investors good risk/reward to open a position. A gap is simply a pocket of air, in between two different time periods on a stock chart. It is very likely to be following an earnings release, potential takeover news, etc. Often after a gap fill, one will see a powerful intraday reversal, so one should be ready to pounce with a limit order to take advantage of the situation. 

Round number theory is one that is under followed, and not given the credit it deserves. It is a simple, yet effective tool that can help investors trim or add to core positions. The round figures often will serve as support, or a roadblock. Some round figures are more important than others. First time trading above 10 can give a stock a boost, as some mutual funds are not permitted to own single digit names. The 90 number is very important, as many studies have shown that the first time a stock trades through that level it very often trades to par and beyond. Whether the reason that round number theory works is psychological or not, it does not matter. Follow PRICE action first and foremost. Below let us take a look at some more examples.

The bull flag formation is a continuation pattern, that forms during an uptrend. Keep in mind leading stocks, will offer investors a chance to add to them on the way UP. The pattern forms after a sustained move higher, and then the stock digests the strong advance, with very taut sideways action. Generally one does not want to see the flag last more than 3 weeks. It is considered very bullish as the stock is stubborn to not give anything back following a powerful rise. The breakout occurs when the stock breaks above the top of the flag, preferably in firm volume. The measured move would be the length of the flag "pole", added to the breakout PRICE. What better way is there to learn than to look at a few recent examples.