Get to know GAP in forex trading

What is GAP?

When the sunscreen is open, that is where the sun rises on the eastern horizon, a sign of the beginning of trading week on financial markets has opened. The author was surprised, when almost in all the pairs linked to the US dollar, opened with a "gap". Curiosity went on the rampage to find the cause of the fall, which led to a surge in prices after the weakening US dollar against other major currencies. Apparently, the cause of the gap is news of former Finance Minister Lawrence Summers who is a strong candidate to replace Fed chairman Ben Bernanke, resigned from the Federal Reserve's nomination.

Gaps often appear between closure and market opening. Especially in the market break there is a big event that can make the price when the market is sleeping. So when the market opens, there will be a significant price spike.

What is "GAP" exactly?
The price gap is an empty space that we can see on the chart created because the opening price on the candle / bar is not the same as the closing price on the previous candle / bar. Usually gap, will be filled again by price movement. But the fact is that not all gaps are replenished and sometimes act as support or resistance areas.

According to its type, the gap is divided into three parts: breakaway, runaway and exhaustion gap. Here is an explanation of the 3 gaps:

1. Breakaway Gap
   Breakaway Gap is a Gap that occurs simultaneously with a reversal or trend reversal. Therefore, the breakaway gap is at the beginning of a trend. This type of gap is not always recharged and often acts as a support or resistance area

2. Runaway Gap
   Runaway Gap is a gap that occurs in the middle of the trend. This type of gap indicates a strengthening trend and acts as uptrend support, and as resistance to the downtrend. Therefore, this type of gap is not always filled. This type of gap is also referred to as the measurement gap as it often occurs in 50% trending travel. That is, when the break is formed, we can predict that the price tends to move at a distance equal to the distance from the previous movement.

3. Fatigue Gap
   Fatigue Gap is a gap that occurs before the trend ends. However, in real conditions, the fatigue gap can be identified after the trend ends or reversal.
   In the discussion of the gap, we will also recognize the term island reversal top and island reversal bottom. The island of reversal is a collection of bars / candles that are separate from other bar / candle bundles. The combination of fatigue and breakaway gaps forms the island's reversal pattern. Reversal islands can form above and in the valley. When formed above, this pattern is called a reversal of the upper island, and when formed in the crater, this pattern is called the lower reversal island.

The discussion gap actually has a very close relationship with the concept of the trend. By adding gap analysis in trend analysis, we will be able to cross-check to confirm each other. However, the frequency of the gap is not always the same between the instruments. For example, gaps are quite rare in currency instruments. Conversely, gaps are common in stock index instruments, commodities, and other derivative instruments.

Hopefully useful for those of you who want to understand the gap. If you want to try the app and see the gap in the real world market, can try Demo Account as well