Master Gap Fills: The Support & Resistance Tool Pros Use

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This is the Trading Playbook where the charts do the talking and every session makes you a better trader. Hello, hello everyone and welcome to the very first episode of the Trading Playbook. Guys, I am so excited to be here. For those of you who don't know me, my name is Lawton Hope, pro trader here at Verified Investing. You guys might have known me previously from doing AMAs and the earnings levels, but this series is specifically geared to teach you everything you need to know about the basics of trading and then have a partner episode with it, which is actually coming out tomorrow, which is going to give you three actionable trade setups using the exact concepts that we talk about on today, this Saturday's show. With that being said, let's hop right into it today. Here is the play. So, today we're talking a little bit about gap fills, right? And let me show you what gap fills are. So, basically, if we take a look at this chart of Nvidia, a gap fill is formed when price, in this example, closes here around 178.68, but the next day opens at a different place, further away, creating this gap here. This gap, right? Is the distance between where we closed on one day and opened up another day. And when price eventually comes back into there, let's say in this case Nvidia, instead of going straight down, moved up before going down, right? Then you would have considered that gap filled. Now, gaps aren't created in the same place for each individual uh individual candle. Right? For green candles, meaning the price closed above where it started, the gaps need to be found at the top. Right? This is where the gap starts. At the top of that candle. Because that's where price closed. For red candles, it is the opposite. So, we know already that price opened up down here, but it also created another gap. Why? Because it opened or closed, rather, down here around $171.25. And then the next day, as we know, it opened down here around $170. So, that created an additional gap. So, you see two gaps on my screen. Just to reiterate, on green candles, gaps can be found at the top of the green, not the wick, but the candle. And on red candles, it is at the bottom of those red candles. All right? So, let's hop into a couple examples of how this works. This is reading the tape. So, back to this Nvidia chart, we'll take a look at a couple gap fills. The first one is highlighted on my screen. This gap was created on the 2nd of June. Right? Not too long ago. And we can see that Nvidia, and this is a very small gap, right? Nvidia opened down slightly, half a percent. But, what did we see intraday? We saw price go up into that gap and become filled. Right? That gap has been filled. And what do we expect out of gap fills? Well, we expect rather either support or resistance. And in this specific case of Nvidia, filling that gap, right, after filling that gap, we saw an immediate move down 3 and 1/2% lower from that gap. And so, watch how powerful that gap was. Amazing. I'm going to give you a couple more examples of different gaps that have played out so you can better identify them and use them as support and resistance. >> [snorts] >> On Meta, and this happened, um, on Wednesday, we there was a gap here from the 7th of April on Meta. Meta, after gapping up there, moved up over 20% and basically had to come down again to that level, ultimately filling that gap. And while you can't see it on the daily candle, right, you can't see it on the daily chart because you don't see, hey, this thing didn't bounce, the gap fill wasn't useful. Well, was it? Let's take a deeper dive and take a look at the intraday pattern. And we can see actually that when Meta came down and hit that gap, perfectly, went slightly below it, you had a bounce about $5 on Meta. An awesome potential day trading opportunity. Right, you could have taken five bucks right there off of Meta, about a 1% bounce. Now, Meta continued to fall through it, but you can see how wonderful that first initial level of support was on Meta. We can keep going to Micron. Right, and Micron, we know that there was a massive sell-off on uh June 9th on Tuesday, but on Wednesday, what ended up happening? Well, we had that gap and one more thing I want to mention, the wider the distance, the wider the gap is, right, the more powerful it is. And this was a gap of about 3.3%. And Micron initially went was started red and pushed up as you can see and actually was green briefly. So, we had that nice smooth up about 3 and 1/2% hitting this gap fill perfectly during regular market hours and then pulled back how much? 3%. And look at this, you could have played this gap fill a second time. Now, price did would have gone against you about 2%, but look at it now. Price of Micron came down over four or five percent from that gap fill from a secondary time. So, just because on, you know, the the gap doesn't look like it was filled, you don't see that much resistance instantly, doesn't mean you didn't see intraday levels. But how about swing trade levels, right? How about swing trade levels? Well, that's a good question. Let's take a look at the chart of Flower Foods and as you can see that 688 level has been highlighted for me. Right, the lowest price that it got during earnings on the 21st of May. Now, for Flower Foods, this gap fill goes way back and the further and more significant that gap fill is, the larger of a bounce you're likely to see. And you can see here that this is a gap fill all the way back, guys, from the 27th of June in 2005. You see that nice gap fill there around 688, potentially providing support. And if we flash back to price action today, we got an incredible 20% bounce from those lows on Flower Foods. Absolutely incredible, guys. Now, one final chart I'm going to go over is Hims, HIMS, something that played out last week. So, on Thursday, the 4th of June, we had great move up, a great move up on Hims. I don't remember the exact news. I think they were approved for something by the FDA, but look what happened. We saw price get into that gap fill, push up over, let's see, over 6.3% intraday, moving up into that gap fill, hitting that level, and what happens next? Completely falling down 12 or 13% off of that gap fill. And same thing happened on Tuesday. We saw price move up into that gap fill, and then pulled back marginal amount, about about 20 cents. And then on Wednesday, we saw price initially open here around 2840, push up, hit that gap fill, went slightly above, but then sold off over 4%. So, that just shows you how powerful these gap fills are. And the reason why I love this Hims um gap fill so much is because it is a gap fill from earnings. Now, what is that? Well, a gap fill from earnings is more significant because these gaps are created due to the market volatility that comes with the earnings call. Right? Companies put out, you know, potential earnings and they have certain expectations that they're expected to meet as far as earnings and revenue. And we can see here the earnings on Hims disappointed by over 1,600%. And the revenue missed expectations by 1.4%. Price then absolutely collapsed and has recovered and that's why this gap fill here is so significant. >> [snorts] >> So significant. Right? And now we're going to talk a little bit about what you can expect on tomorrow's play call. So tomorrow we're going to give you three different gap fills coming up that might get hit this week. I'll also tell you how much I'd be looking for for a potential bounce and whether it is a better swing trade or potential short-term day trade level. Regardless guys, gap fills are something I use every single day in trading and one of my absolute favorite indicators. In fact, if I could only use three indicators, I believe that gap fills would be one of the top three. With that being said guys, thank you guys so much for tuning in to the trading playbook and I'll see you all tomorrow. Bye guys. That's the trading playbook. Today's episode was your film study, the principle, the pattern, the framework. The application is waiting for you on Sunday. Real setups, real levels, ready before Monday opens. Subscribe to Verified Investing on YouTube. Saturday teaches, Sunday prepares, show up ready.