How to Identify Professional & Non-Professional Gaps?

Welcome to Episode 8 of Price Action Trading Series from MarketSecrets.

In this episode we are go to learn about “Professional & Non-Professional Gaps“.

In addition to the 2 types of supply and demand imbalances i.e Valleys and Peaks – which is called extremes & CP(Continuation Pattern), there is one more imbalance that comes into play often. It is called gaps. Let’s discuss about in detail in today’s episode.

To watch all the episodes, please use this link: https://www.youtube.com/playlist?list=PLRpfTFEfJ27Y9rFMjQZgXPRjxiA3dPhOP

GAPS ARE THE STRONGEST FORM OF IMBALANCE

A gap stands for an extreme imbalance, the buying or selling pressure was so strong that orders were not filled, thus creating a gap up or down.

These gaps are blank areas with no price action within. Gaps are usually (not always) filled short after its creation.

Gaps in price are great because they can be seen as both the structure of a strong imbalance and the picture of confusion, fear and probably greed.

You can see them the way you want, but in reality gaps are blank areas in a price chart where the supply/demand pressure was so strong that orders couldn’t be filled at the best price.

Not every gap sends the same message. We need to make our top down analysis first. Once this is done, we can use this information to spot the picture of professional and non-professional traders, so we can take a low risk, high reward, and high probability trade trading on the side of the professional trader.

Gaps are the most obvious way to spot a non professional trader (or novice), which is exactly who we want on the other side of our trades.

Remember, if you can’t spot professional traders, then you are not one of them.

Professional and non-professional gaps offer strong opportunities when they are presented under the right trend scenarios.

THE PROFESSIONAL GAP

Professional gaps are strong reactions to bigger timeframe imbalances or flip zones.

The gap in price can be produced by different circumstances, a news event, institutional buying/selling pressure, or any other event.

The fact is that the professional gap usually happens when a trending bigger timeframe is in control or there is a strong flip zone.

When the gap has materialized, we’ll probably have a new lower timeframe imbalance, potentially becoming a bigger timeframe imbalance.

THE NON-PROFESSIONAL GAP

This kind of gap usually happens near or at a bigger timeframe imbalance, non-professional traders usually buy into bigger timeframe supply, probably based on a lower timeframe entry, some kind of news event or a strategy based on lagging indicators.

Non-professional gaps trap those traders that are not aware of supply and demand imbalances or what the bigger picture trend is shouting at them, thus they often find themselves on the wrong side of the trade.

Some thoughts to keep in mind when you spot a gap, examples are for gaps up, the opposite applies for gaps down:

• A gap up in price, in the context of an uptrend, is a very high odds long opportunity on a pullback to potential demand created, when there is a significant profit margin above and no bigger timeframe supply is nearby or in control
• A gap up in price, into bigger timeframe supply, after a strong rally in price, and in the context of a larger bigger picture’s downtrend is a LOW odds long opportunity. It can potentially become a high odds opportunity when it’s been taken out.

There is much more on gaps we could write about. Keep in mind that the picture of the ultimate supply and demand imbalance is a gap.

Instead of looking at coloured candles on a chart, start looking a little bit deeper into price action and begin to understand the order flow that’s going on behind the scenes that is responsible for the creation of those candles.

These basic thoughts and ideas will likely give you an edge.

Most Important thing to remember about Gap: Always draw the zone that is right below/above the gap, not the zone right before it.

The origin of the imbalance is always at the origin of the gap

Samples:

 Gap has been filled and price is dropping again from supply zone now

Gap is not filled in this case, price never came back to demand zone created due to gap.

Assignment:

Open your chart and mark at least 10 gaps which were filled on the same day and 10 gaps which were not filled even after a week.

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