Anyone know of an indicator to alert you to a gap between candles? I find when there is a gap on a new candle (let's say 15 min chart for example) and the wick doesn't make it to the 50% area of the previous candle, that is a strong sign of it breaking out or at least a strong trend sign. An indicator that marked that gap or created an audio alert would be great. Posted below is an example of 2 such gaps. TF went for over 100 ticks following the first candle body gap. 2014-02-12_2238 - Essiar's library
@essiar: I understand the value of gaps, if you look for them on daily bars. The gap represents the time elapsed during which the market was closed.
However, it is difficult to apply the concept of gaps to intraday candles. Let us assume that there is a gap on a 5-minute chart. Then it means that the last tick within the first 5-minute period printed at a price which was at least 1 tick different from the price which was observed for the first tick of the next 5-minute period. There are a few things that come to my mind:
-> Such an occurence can simply mean that the last tick of the prior bar traded at the bid and the first tick of the new bar traded at the ask. Possible interpretation : none.
-> The probability for such gaps is increased in illiquid markets, which cannot be traded.
-> If a two-tick difference is observed, that is if one level of the order book is omitted, this would mostly happen within the 5-minute period and not just between the last and first tick of two consecutive bars. This means that the indicator would not be able to detect the majority of such events.
If you look at the idea, you try to detect insignificant events that happen all the time, but the indicator will only display them when those events happen to coincide with the bar close. This does not make sense.
What bar type do you wish to apply your candle gap indicator to? Maybe there are bars constructed in a special way, such as Kase bars, to which the concept can be applied?
The following user says Thank You to Fat Tails for this post:
"If you look at the idea, you try to detect insignificant events that happen all the time, but the indicator will only display them when those events happen to coincide with the bar close. This does not make sense."
Touche. This makes perfect sense BUT hear me out...
I only look for this on minute charts and no smaller time frame than 15 min candles (which was the example I posted). I can't explain WHY this works but it undoubtedly does. Perhaps it has to do with traders making moves en masse on the half and whole hour? Perhaps it has to do with HFT algos? Honestly, I have absolutely no idea, BUT... if you look at let's say, 15 min candles during regular trading hours and see a candle body gap where the wick of the new candle does not make it back to at least the 50% line of the previous candle, you will see a noticeable move in the direction of the new candle. There are not that many 15 minute candle body gaps during any one day during regular trading hours (pit hours). An indicator that alerted you to this phenomenon would be quite valuable IMHO.
Now, your above statement makes perfect sense to me. I'm sure there are countless similar activities that occur in the midst of the candle form and not at the start/end of candle formation. So be it. Those phenomena would be either undetectable or perhaps would be detected by other indicators. I don't care about that. What I do care about is the fact that my observation holds true the vast majority of time and an indicator that spots a body gap between the close and open of another candle would alert me to keep an eye on that instrument at that moment.
Go look in your charts for this gap between 15 minute candles during regular trading hours where the wick doesn't make it back to the 50% line of the previous candle and you will see noticeable moves immediately following that gap. I could have copied/pasted dozens of examples here but didn't think that was necessary.
As usual Fat Tails, thanks so much for taking the time to read and reply to my post. Your input to this community has been invaluable.
I just had a look at a few charts. I could observe gaps in both directions, that is
- new bars opening one tick above the close of an upclosing bar
- new bars opening one tick below the close of an upclosing bar
- new bars opening one tick below the close of a downclosing bar
- new bars opening one tick above the close of a downclosing bar
It is just a switch from a bid to an ask or vice-versa, which happens at the full minute.
No conclusions can be drawn.
Could you come back with a few examples, but then look at all the gaps that occured during that day (not only the meaningful ones) ?
This sounds like the concept of Gap Bars in price action trading. You don't just look for a gap between the close of one bar and the open of the next (although a gap there has the same meaning unless in very thinly traded market). A simple example... Look at a group of three bars.... A, B, C all bull-trend-bars. Is there a gap between the high or close of A and the low of C ? If yes, then B is a gap-bar and is the bar where traders rushed in. Now, measure the distance between the low of A and the mid of B and double it... that is their target.
Last edited by vchase; September 29th, 2015 at 08:24 AM.