WHAT ARE GAPS? TRIGGERS AND TIPS TO SPOT & TRADE THEM

5 de nov. de 2022

Gaps are important parts of the financial market, especially in stocks and currencies. They happen when an asset opens at a significantly lower or higher price than where it closed at.

Gap is a situation where a currency or any other asset opens sharply lower or higher than where it closed the previous day. Such a gap happens when there is a major event or news when the markets are closed.

It usually represents an area where there is no trading taking place.

There are three main scenarios that happen after a gap in the market forms.

First, an asset price can continue moving in the direction of the gap. For example, when a bullish gap forms, an asset’s price can continue with that trend.

Second, a gap can be filled within a few days or months.

Finally, a gap can be followed by a long period of consolidation as traders focus on the next major moves. In all these, it is always good to focus on the asset’s volume.

The most common strategy of gap trading is when you decide to enter a trade in the opposite direction of the gap. In this case, you will be betting that the asset will reverse after forming a gap. Ideally, one way of doing this is to check the trends of volume after the gap happens.

Still, the risk of doing this is that the asset will either consolidate or resume the gap trend.