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>> Hey guys, Lawton Ho here with Verified
Investing back with another
trading playbook. Happy Saturday. Hope
you guys are doing well.
Today, we have a very special episode, a
very highly requested episode. But
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So, please like and subscribe to the
Verified Investing YouTube channel. Um
so, that being said, let's kind of get
into it.
Today, and and I'm very excited to talk
about this. Uh this week's play is
gap fills.
So, now what are gap fills? Well, this
was actually the very first episode that
I previously talked about. However,
people have been continuing to ask about
it and I figured out a couple more
things that I want to add on to it,
right? So, let me go into the charts and
explain first what a gap fill is and I'm
going to also explain why it is the
single biggest indicator that I use
almost every single day when I'm
trading.
So, what is a gap fill?
Well, basically, anywhere you see on the
charts
where there is a gap, you see a gap
from one candle to another,
that is a gap, right? This is
a gap.
Excuse me.
And the reason this happens, right? The
reason why a gap forms
is because
price opens up
right? At a different price than where
it closes the day before.
Now, most of the time
it doesn't really matter.
For example, if I go in and pick a
candle like
let's say
this one here, right?
So, this is where price
closed and this is where price opened
the next day.
So, the gap was formed. But you can see
the candle
lapped over it and filled that gap,
meaning price went back and hit that gap
and even went further.
Right?
I'll explain in more detail.
When you're looking at candles, this is
a green candle, where is price open and
where does it close?
Where does price open and where does
price close?
For a green candle, the bottom, okay?
The bottom of the green candle is the
opening price
and the top, right? Not the wick, but
the where it closes up here. The top,
this is where it closes.
As far as a red candle, it's the
opposite.
Right?
Over here
the top of the red candle, not the wick,
but the top of the base, right? Of the
red candle, that's where price opened
and the bottom, right? The bottom of the
base, the bottom of the candle, the
thick part, the bottom of that is where
price closed.
So
using these candles,
right? Using these candles, price opened
up here,
closed here. And then price opened up
down here. So, there is a gap that's
formed.
Now, when we say the gap is filled or
the gap fill, that just means when price
goes up and hits that level. This gap
that was formed that was previously not
filled.
Right? And we'll do it for this red
candle. So, red candle here,
and where did price open up the next
day? Up here, because this is the base
of a green candle.
And there was a gap. But because price
that same that next day came down and
hit and actually went lower, it doesn't
have to go lower, it just has to hit
that level, that gap was then
filled.
Okay?
So, that is essentially what a gap fill
is.
And it's important to note that gap
fills are valid
forever
until those gaps are ultimately filled.
Now, what do I mean by that? Well, let's
take a look at this gap down here that I
immediately circled first, all the way
back from the 7th of April of this year.
Taking a look at the chart and at the
gap, this is the gap fill.
Price
after
April 7th, which is where this closed,
has never gotten to $659.22
or lower. So, that gap has not been
filled.
But, if I go ahead and look at this gap
over here, around 723,
77,
well, the gap wasn't filled for a long
time, but when price came down right
here on the 9th of June
and hit that level,
this gap
was then
filled.
Same thing here. Coming down, hits it.
This gap was then filled.
Right?
This gap was then filled.
>> [clears throat]
>> All right. So, let's take a look at a
couple more gaps, if you will. And what
better place to look at a gap filled
than on the stock Gap. Now, Gap had
earnings um
on the 27th of August. So, last So, last
week on Thursday.
And you can see
Remember green candle, right? Green
candle,
where did it close? Here.
And then where did it gap up to? Where
did it open the next day? Remember, on
red candles, it is the top of that base.
The top right here.
This was the gap that was created.
And you can see that the gap has yet to
be filled. Why? Because after pushing up
and opening up there,
Gap has not yet come back to $20.79.
But that's what makes um but I want to
add another thing to the about gaps,
right? Is that a couple things are even
more important to note. That the size of
the gap,
right?
The bigger the gap, the more powerful it
is, generally.
And additionally, when you gap up on
news or something like earnings, which
in this case, earnings,
right, was the reason Gap pushed up and
opened so much higher.
That is also another factor that makes
the gap even more powerful. And not all
gaps are created equal.
Let's
Let's explain on this chart here of
Dell. First off, immediately looking at
this gap here,
look at this gap. Why was it created?
First of all, very large. Nice, we like
to see a 32% gap up. Why did it pop up?
Oh, I can see right here. It popped up
off of crazy earnings, right? Off of
crazy earnings. All right, that's a
decent gap. That's a very powerful gap,
and I expect a large bounce from that
level.
But guys, if I go over here and look at
this gap that was created from this base
to this base, is this a gap fill? Yes.
Is it valid? Absolutely.
But is it going to be as powerful as a
gap that was created 32 with 32% move up
off of earnings?
Absolutely not. So, the gap is still
valid here. It's just not as powerful as
this one.
And the last thing I want to do is a
quick exercise. I'll throw up the chart
of Google.
I'm going to ask you to identify
two key gaps, one gap up and one gap
down.
And you can pause the video right here
and draw it, and then I'll go over the
answer.
All right.
So, the key gap up and the gap down,
first of all, is this.
Huge gap up. What was it? About a 7%
move up,
right? 7% gap up to here.
Why did it gap up? Because of earnings.
And if we go back here, look at this
gap.
Where did it gap down to? Down to here
because we're red.
And how much of the gap was the gap? 6%
And why did it gap down? Because of
earnings. But it's important to note
that these gaps are not currently valid.
These gap fills are not currently valid.
Why? Because price has sin since come
back down and filled these
gaps.
This one filled it here. And all
throughout there.
And as for this one down here,
up here rather,
we
filled that gap all throughout here.
Right?
Previous gap fills can be used as
support and resistance, they're just not
going to be as powerful.
And looking at this chart, I have one
gap, kind of one gap right down here
for support
as a valid gap fill.
And a gap fill up here
as a solid level of resistance. So those
are the two closest gaps
on uh next closest gaps on Google.
With that being said, guys, that's all I
have for you today. My name is Lottenho
here with Verified Investing. Tomorrow
um I'm going to give you three
actionable trade setups based on these
gap fills. I hope you guys understood. I
really tried to pour everything I know
into gaps. This is my absolute favorite
kind of indicator technical analysis
thing that I use almost every single
day. I hope you have a great rest of
your day and I'll catch you in the next
one. Bye, guys.
>> [music]
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