![]() Common gaps simply show a gap in price action independent of price patterns and usually don’t provide exciting trading opportunities.Ģ. The four types of gaps in tradingĪside from gap down and gap up, there are four main types of gap, dependent on where they show up on a chart: common gaps, breakway gaps, continuation or runaway gaps, and exhaustion gaps.ġ. A full gap down is when the opening price is lower than the prior low price, while a full gap up (as shown above) occurs when the opening price is greater than the prior high price. Gap down stocks and gap up stocks refer to the direction of the price movement either side of the gap. This is because they can move the market significantly between trading sessions in either direction. Other news such as product announcements, analyst upgrades and downgrades, and new senior appointments can lead to gaps. For example, in the chart above, ASOS stock rallied overnight as the company’s full year results showed it avoided another profit warning - along with traders showing confidence in the company’s ability to fix critical operational issues. Why does the gap occur? The most frequent cause is fundamental factors. This will appear as an asset’s price moves sharply up or down with nothing in between, meaning the market has opened at a different price to its prior close. What is a gap?Ī gap refers to the area on a chart where no trading activity has taken place. ![]() Read on to discover more about the phenomenon of gaps, the four types to be aware of, and how to employ a gap trading system. Gap trading strategies help traders capitalize on the gaps in charts caused by price fluctuations between sessions.
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