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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.
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.