Knowing Where You Stand
You may be unfamiliar with technical analysis and the use of stock chart patterns to track stock performance, but it is one of the most important skills that you can acquire as an independent investor. Instead of relying on societal cues about the demand for a particular commodity, as fundamental analysts do, technical analysts instead examine stock price fluctuations over time, and look for signals like the gap risk which help them decide whether selling or buying is appropriate at the given time.
Technical analysts define gap risk as the chance that a change in price for a particular stock will take place unexpectedly, and without indication on the charts. This usually means that although a stock’s price closes at a certain level one day, the next day it will open much higher or lower. These gaps can be disconcerting and make you feel like you don’t know where you stand in the market, and are usually a result of bad news about a particular company or stock breaking in the media. These things are to be expected, and you have to watch the market carefully to determine whether the trend will continue.