Mastering Gap Trading: Strategies for Profiting From Market Gaps

Gaps are essential in technical analysis and play a significant role in a trading strategy. Experienced traders know that price gaps provide big clues about price movements and the market’s trend. Below, we’ll delve into what a gap is, as well as the markets in which gaps appear and the reasons behind gap formations, and then we’ll look at gap trading techniques.

Key Takeaways:

• A gap is an area on a price chart in which the price rallies or falls quickly with little or no trading activity taking place at any price level.

• Gaps occur regularly in all markets. Understanding their individual price patterns can help you spot trends.

• A popular trading strategy is to assess where current gaps are and anticipate market trades to fill them.

What Is a Gap?

A gap occurs when there’s an empty space or jump in price movement on a chart, indicating that little or no trading activity has taken place within a specific price range. Gaps typically occur overnight or during periods when the market is closed, resulting in a visible gap on the chart. They can appear on various time frame charts: Intraday, daily, weekly or even monthly.