What You Should Know About Gaps And Their Types In Trading

Generally, gaps mean something that has space from one another. If you are a good observer of charts you might have seen gaps on the chart of the currency you are analyzing or trading on. Gaps in trading mostly occur when there is a break between the opening and closing price of the prior day of the asset. In this post, we will be learning about gaps.

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Gaps

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As we have said, a gap means space, but in crypto or forex trading, gaps occur in trading when there is a break between two (2) different trading sessions which is the currency opening and closing price of the prior day of a currency. Many traders, Investors, and analysts use gaps as a strategy for trading the financial markets, and you can also take advantage of the strategy and hit the market.

Gaps normally occur in trading whenever the prior day's closing price of a cryptocurrency and the next opening price of the underlying cryptocurrency have some different price levels. This means whenever there a different price levels between the prior closing price and the next day's opening price of the asset you are analyzing, then you should know that gaps have occurred, which you will see on your chart.

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Why Gaps Occur

Gaps sometimes happen when the earnings of the asset are higher than what is expected, which triggers the market to break. Also, gaps can occur when there is specific news about the asset that can make the asset rise or fall beyond its current trading price.

Finally, gaps occur when liquidity is low to cover up the demand between buyers and sellers in the market, and high trading volume can also cause gaps to occur.

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Types

Generally, there are four types of gaps which we have shared in this post for you to learn.

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Common Gaps

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The first on our list is the common gaps, which are also known as area or trading gaps. Is it the type of gap that occurs when the market is nervous and gets close within a few days of opening? In a common gap, you will see it appearing in a trading range which is usually at the top of a chart bar.

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Exhaustion Gaps

This is the type of gaps that mostly occur at the of a 📉 trend or a significant level of support and resistance. As a trader, you can use the information of exhaustion Gaps to know when you are to exit or enter the market.

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Continuation/Runaway Gaps

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This type of gap is also known as a measuring gap which Is a gap that occurs when an uptrend begins to fall when retracement doesn't occur on time. The gaps are used to represent panic buying and selling in the market, which can also occur when there is a positive or negative concerning the underlying asset.

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Breakaway Gaps

This is the type of gap that gets filled initially when the price of the asset gaps over the levels of support or resistance. You will see the gaps as a breakout pattern, but not a breakout. In this type of gap, the bigger the breakout, the more stronger the trend will become.

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Disclaimer

_{Gaps in trading are what we have learned today, which is a break between two different candlesticks i.e. the previous price of an asset and the next-day price of the underlying asset. Note: this post is not an investment advice but purely written as an educational content.}

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