Price gaps have been around since the first bar chart was created perhaps 115 years ago. Gaps do not appear on line charts and point-and-figure charts. Gaps are called windows on Japanese candlestick charts, which date back to around the 1740s. Gaps are a price void created by a significant change in supply or demand for a security. The chart of Tableau Software (DATA) is dotted with gaps.
In this chart of DATA, above, we can see a gap up in February and another one in May. In July, DATA gaps to the downside. This morning we see what may be the most dramatic gap on the chart with DATA soaring above the 50-day and 200-day moving averages.
What do you do?
For the chartist, the problem is not the direction of prices, which is key to making money in the markets. At this juncture, the problem is the risk. Where can you buy DATA and risk a reasonable amount of money? If DATA just keeps rising from here, then we can go long at the market and risk 8% from entry. If we only knew for sure, we could use a very close sell stop below today's low or some other point. It's hard to say what can work.
I don't have a strong conviction here, so I am going to wait for more information, or data.