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How Do I Determine a Gap Fill

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July 03, 2012 – Comments (0) | RELATED TICKERS: SPY

Recently I was asked by one of my readers what do I determine to be a 'Gap-Fill' citing a lot of conflicting definitions, and vagueness surrounding this subject matter. 

First-off there are a few popular ways in which people will define this... 

- A gap-down is filled when price action the day of or in the future comes back and touches the lowest point of the price action from the day prior to the gap down - i.e. the lower candle shadow

or

- when price action after the gap down pentrates the candle body from the day previous to the gap down (ignoring the shadows on the candle all together). 

And of course these definitions just have to be flipped for gap-ups. 

Then of course there is the third definition... and the simplest, easiest and the one that I subscribe to

First, here the chart I'll explain myself on...

So I define the gap down as this: 

- The difference between the previous day's closing price and the next day's opening price. 

In order for it to be filled, price must, at some point, whether its the next day or weeks down the road, touch the closing price of the day PRIOR to the gap down. 

In the case above that has happend, albeit barely. 

Now, let me just say one more thing, if its something like SPY  or another heavily traderd, high share priced stock or ETF, and if the action comes within pennies of being filled, I'm not going to split hairs over that. Some will, but essentially I look at intent, and if the stock comes with in a few cents of filling a gap before reversing and going the opposite direction, I'm not going be get all scientific and boldly proclaim that the gap wasn't filled. Instead I will accept it as a gap fill and move on. There's just no sense in splitting hairs over a few cents. 

In any case, I hope I was able to help you with this. 

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