This is (probably) going to be the last part of “Advanced Gap Series”. BoomStocks introducing you “Island tops and bottoms”. Islands are probably the strongest and rarest charts of all the gap patterns.
It consists of a gap that follows by a short-term consolidation, then another opposite direction gap of the first gap (this makes consolidation part looks like an island). You won’t hear many people talk about these patterns because they are uncommon, or perhaps most traders don’t even know about the concept.
Classic island patterns need to have a point where there is no trading history between first and second gap. Also both gaps have to be relative in size with the second gap jumps pass the first gap range (aka pattern confirmation). However, there are some variables of the pattern and will work as effectively as a classic one. Below are classic island patterns and you can see that they worked out well as a turning signal and support/resistance zone.
These island patterns are rare but they have higher rate of success compare to other gap concepts. Plus they are easy to spot, so if you see one and want to give it a try. Don’t forget your trading plan, position your size wisely and have your stop set in case of fire.
