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Technical Analysis of Gaps: Identifying Profitable Gaps for Trading [Hardcover]

Julie Dahlquist , Richard J. Bauer

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Book Description

8 Jun 2012

The first complete, evidence-based guide to profitable gap trading: showing you how to recognise the gaps that matter and trade successfully on them.

 

Drawing on 6years of comprehensive data, Julie Dahlquist and Richard Bauer demonstrate how to sort “strategic” gaps from trivial ones and successfully trade on gaps identified as significant.

 

This book goes beyond “folklore” to systematically analyse the profitability of gap trading, helping you to identify and trade on strategic gaps and showing you how to combine gaps with other technical methods.

 

The book includes powerful tips for gap trading in stocks, futures and options.

 



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From the Back Cover

“Finally! We now have a book that deals exclusively with price gaps. Read how to identify them, trade them, and measure their returns. The authors challenge conventional wisdom regarding the usefulness of gaps on heavy or light volume. Find out if days that contain a high number of gapping stocks will offer clues to the market’s overall direction. I thank Julie and Richard for addressing my forty-five-year-old curiosity: What does it mean when prices gap above or below moving averages?”

Ralph J. Acampora, CMT, Director, Technical Analysis, Altaira Limited

 

“Technical and quantitative market analysts who use or are considering using price gaps either in discretionary or systematic trading strategies will want to study, not just read, Technical Analysis of Gaps: Identifying Profitable Gaps for Tradingby professors Julie Dahlquist and Richard Bauer. It adds momentum to the trend of rigorous evidence-based literature. Traders will learn which gaps contain the best profit potential and which contain none. It made me realize how little I knew about this important area of technical analysis.”

David Aronson, CMT, President, Hood River Research, and author of Evidence-Based Technical Analysis

 

Technical Analysis of Gapssummarizes the authors’ comprehensive research on stock price gaps. In it, they describe surprising results in gap behavior that dispel many Wall Street myths. They show practical methods for taking advantage of gaps and profiting from their appearance. This book is a classic. In my opinion, it is the final, complete treatise on the subject of stock market gaps.”

Charles D. Kirkpatrick II, CMT, Kirkpatrick & Company, Inc., and coauthor of Technical Analysis: The Complete Resource for Financial Market Technicians

 

The First Complete, Research-Based Guide to Profitable Gap Trading

 

Gaps represent price jumps that could signal profitable technical trading opportunities. Until now, however, “folklore” about gap trading has been common, but tested research-based knowledge has been virtually nonexistent. In Technical Analysis of Gaps, renowned technical analysis researchers Julie Dahlquist and Richard Bauer change all that. Drawing on 17 years of comprehensive data, they show how to identify “strategic” gaps with high profit potential to trade more successfully.

 

Building on work that recently earned them the prestigious Charles H. Dow Award for creativity and innovation in technical analysis, Dahlquist and Bauer present specific techniques for analyzing gaps. They address issues such as gap size, volume, and previous price movement; illuminate key findings with easy-to-understand diagrams; and integrate their insights into practical, actionable trading strategies.

 

•  Visualize gaps with candlestick charts

   Uncover surprising gap patterns and trading Opportunities

 

•  Measure the profitability of gap-based trades

   Gain objective information to assess and select gap trades

 

•  Understand subtle relationships between gaps and price movements

   Use both short-term information and longer-term moving averages

 

•  Put it all together in profitable trades

   Translate gap research into successful strategies


About the Author

Julie R. Dahlquist, Ph.D., CMT is a senior lecturer, Department of Finance, at the University of Texas at San Antonio College of Business. She is the recipient of the 2011 Charles H. Dow Award for excellence and creativity in technical analysis. She is the coauthor (with Charles Kirkpatrick) of Technical Analysis: The Complete Resource for Financial Market Technicians and coauthor (with Richard Bauer) of Technical Market Indicators: Analysis and Performance. Her research has appeared in a number of publications, including Financial Analysts Journal, Journal of Technical Analysis, Active Trader, Working Money, Managerial Finance, Financial Practices and Education, and the Journal of Financial Education. She serves on the board of the Market Technicians Association Educational Foundation and is a frequent presenter at national and international conferences. She earned her B.B.A. and Ph.D. in economics from University of Louisiana at Monroe and Texas A&M, respectively, and her M.A. in Theology from St. Mary’s University.

 

Richard J. Bauer, Jr., Ph.D., CFA, CMT is Professor of Finance at the Bill Greehey School of Business at St. Mary’s University in San Antonio, Texas. His degrees include a B.S. in Physics, M.S. in Physics, M.S. in Economics, and a Ph.D. in Finance. He is the author of Genetic Algorithms and Investment Strategies and Technical Market Indicators (with J. Dahlquist), both published by John Wiley and Sons. He is the recipient of the 2011 Charles H. Dow Award for excellence and creativity in technical analysis. His research has appeared in a number of publications, including Financial Analysts Journal¸ Journal of Business Research, Managerial Finance, and Korean Financial Management Journal. He became a CFA charterholder in 1990 and a CMT charterholder in 2010. He is a past president of the CFA Society of San Antonio.



Inside This Book (Learn More)
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Front Cover | Copyright | Table of Contents | Excerpt | Index
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Customer Reviews

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Most Helpful Customer Reviews on Amazon.com (beta)
Amazon.com: 3.7 out of 5 stars  26 reviews
8 of 8 people found the following review helpful
4.0 out of 5 stars Handy and helpful 9 July 2012
By Hank Pruden - Published on Amazon.com
Format:Hardcover
Opinion: A Handy and Helpful Guide Book
by Hank Pruden, Ph.d.

I have a favorable opinion of this book. The topic of "gaps" in stock prices that the authors discuss is important now and I believe will become even more important to technical analysts and traders in the future.

The price gaps defined, discussed and documented in this compact and handy book will serve as a ready and reliable reference. Many cases of gaps are listed, summarized and scrutinized for points of departure. The incidences of gaps mounting in recent years revealed in this book underscore the fact that gap analysis is becoming a key subject in technical analysis.

This book will help the technician and trader by furnishing a pivotal tool for coping with a market world increasingly composed of fat tails, Black Swans, and Catastrophe Jumps that give rise to non-linear discontinuities. The cases of CLWR on page 95 and PANL on page 100 in the Dahlguist and Bauer book nicely illustrate the use of break-away gaps to identify the transitions from horizontal trading ranges of preparation to the subsequent markdown and markup price trends. Gaps shown helped to define those major shifts in underlying market forces. Thus this handy book can be helpful to traders and analysts seeking to identify future high-reward/lower risk trading opportunities.
13 of 15 people found the following review helpful
3.0 out of 5 stars Interesting gap study 22 July 2012
By Steve Burns - Published on Amazon.com
Format:Hardcover|Vine Customer Review of Free Product (What's this?)
This book was very needed with the unprecedented recent gaps in 2011. The authors go about studying how stocks performed after gap ups and gap downs and how they played out over the next 5, 10, and 30 days. The results are not surprising because they looked at the stock market as a whole and not specific stocks in the value or growth sector. Their findings? Gap ups tend to retrace in the next few days but end up going higher over the next month. Gap downs tend to go down over the next few days but also end up higher over the next month. These findings show that gap ups are bullish for stocks over the longer run and gap downs are usually over done and will revert back closer to the mean price once the fear has subsided.

However this is the case with the vast majority of stocks, there are outliers in growth stocks that gap and run 50% to 100% in price or gap down then tumble 50% in price over a month. I believe a study of growth names would have given different results than a study of all stocks that generally have no real catalyst of growth to send them on a trend that a gap could have signaled. I did not need a book to tell me that gap ups in sleepy big caps tend to revert back quickly to where they started or gap downs tend to go back if the stock is a range bound stock, which most are.

This book is worth the read, it did dispel the trading axioms "All gaps are filled" there are many that go years with out being filled. Or the "trade in the direction of the gap" most down gaps reverse back to where they came.

Interesting read, but it is impossible to really trade with any of the insights in the book, more than anything the book shows that gaps are low probability trading events in the majority of cases.
3 of 3 people found the following review helpful
4.0 out of 5 stars Good, intermediate level book on gaps 19 Aug 2012
By B. Rimes - Published on Amazon.com
Format:Hardcover
This is a good, intermediate level book on gaps. The authors cover the various types of gaps, their frequency and measurement. They also relate gaps to other aspects of technical analysis, such as previous price movement, volume and moving averages.

There are a fair number of charts, mostly candlestick. There are also spreadsheet style tables showing returns of gaps over various market conditions and after different lengths of time.

The last chapter is called "Putting It All Together" and includes a wrap up discussion.

I would like to have seen a trading system with a Tradestation style performance summary.

Ms. Dahlquist and Mr. Bauer are both Chartered Market Technicians with previous books to their credit. I recommend this book for those looking to learn more about gaps.
1 of 1 people found the following review helpful
4.0 out of 5 stars A good read for new or experienced traders 19 Dec 2012
By Tim Frasier - Published on Amazon.com
Format:Kindle Edition|Verified Purchase
I was not sure what I learn from this book, but as a frequent buyer of stocks and options, I wish I had read this book or something like it sooner. The authors presented a great deal of facts based on historical studies and analysis that anyone who has done stock market investing will find useful.

Like:
- Good background and explanation of what occurs when stocks prices gap
- A lot of detailed and descriptive examples provided for certain stocks along with historical data
- Information on how to use the data provided for your own purposes in investing in the stock market

Dislike:
- Some of the chapters can seem redundant and the repetitive or hard to follow at times; it requires focus and maybe multiple readings of certain passages to really comprehend the in-depth analyses.

Overall, I found the authors to have a great grasp and mastery of the topic how the findings can benefit those who invest and
buy/sell stocks. I would recommend this for anyone who wants to learn more about investing in the stock market as this could help them perform better.
1 of 1 people found the following review helpful
4.0 out of 5 stars Though the punchline is that gaps are rarely valuable trading positions... 7 Oct 2012
By Michael A. Duvernois - Published on Amazon.com
Format:Hardcover|Vine Customer Review of Free Product (What's this?)
At least at low risk. Anyway, this was an interesting book for this novice who has only a rudimentary grasp of trading in general and this provided the first examination I've seen of gap trading. I think the gap, so to speak, between this book and any actual trading is still significant though.
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