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Thread: Gap Price Movements

  1. #1
    Join Date
    Aug 2014

    Default Gap Price Movements

    One of the most common continuation chart patterns watched for by those that trade forex is the gap. The gap is one of three classic continuation patterns used in technical analysis, and the other two are known as flags and pennants.

    As the name implies, continuation chart patterns generally indicate that a major trend will most likely continue in the near future. Gap price movements can be in either direction, and so can have bullish or bearish implications for exchange rates.

    About Gaps in General

    A gap in technical analysis jargon is defined as a break in continuity between price or exchange rate levels on a chart that occurs when they makes a sharp up or down move with no trading in between.

    Gaps can be easily discerned on an exchange rate graph. Where normally you would see a trading bar on a graph, a gap or vacuum is present representing the absence of trading at that exchange rate level.

    A down gap occurs on a bar chart when the high of a barís trading range is lower than the previous barís low. Conversely, an up gap would occur when the low of the barís trading range is higher than the previous barís high.

    When Gaps Occur

    Gaps most often come about after a period of no trading, such as immediately after the weekend market closure ends. Nevertheless, they can and often do arise during a fast trading session as exchange rates adjust sharply to assimilate new information.

    Gaps are usually caused by events that have a dramatic effect on the marketís asset valuation, such as large order imbalances, fundamental news or economic data releases, central bank intervention or natural disasters.

    While gaps may be infrequent in forex trading due to the forex marketís round the clock trading hours and considerable liquidity, gaps often occur after central bank rate statements or when the market re-opens on Sunday afternoon New York time after a significant event occurred over the weekend.

    In addition, gaps can occur intra-day during speeches by prominent banking or political figures, or after the release of significant economic data, such as the U.S. Non-farm Payrolls number, especially if the result is considerably different from the marketís consensus.

    Types of Gaps

    Gaps that might appear on forex charts are typically divided into three main types as follow:

    ē Breakaway gaps Ė occur when an exchange rate opens at a higher or lower level, breaking out of the previous periodís trading range.
    ē Continuation gaps - generally appear in a strong up or downtrend and signal an increase in the intensity of the move.
    ē Exhaustion gaps - occur at the end of a bull or bear move and signal an end to that particular move. This gap has a tendency to be filled.

    Only the breakaway and continuation gaps are considered continuation patterns. Exhaustion gaps often indicate the last move of a trend before the market reverses.

    The strategy most often used for gaps in forex trading is taking a position to follow the prevailing trend after a pullback or rally to the gap region occurs. Nevertheless, waiting for a gap to fill could be a futile endeavor in the case of continuation and breakaway gaps.

  2. #2
    Join Date
    Jan 2015


    Gaps are areas on a chart where the price of a stock (or another financial instrument) moves sharply up or down, with little or no trading in between. As a result, the asset's chart shows a "gap" in the normal price pattern. The enterprising trader can interpret and exploit these gaps for profit. This article will help you understand how and why gaps occur, and how you can use them to make profitable trades.

    Gap Basics
    Gaps occur because of underlying fundamental or technical factors. For example, if a company's earnings are much higher than expected, the company's stock may gap up the next day. This means that the stock price opened higher than it closed the day before, thereby leaving a gap. In the forex market, it is not uncommon for a report to generate so much buzz that it widens the bid and ask spread to a point where a significant gap can be seen. Similarly, a stock breaking a new high in the current session may open higher in the next session, thus gapping up for technical reasons.

    There are many ways to take advantage of these gaps, with a few more popular strategies. Some traders will buy when fundamental or technical factors favor a gap on the next trading day. For example, they'll buy a stock after-hours when a positive earnings report is released, hoping for a gap up on the following trading day. Traders might also buy or sell into highly liquid or illiquid positions at the beginning of a price movement, hoping for a good fill and a continued trend. For example, they may buy a currency when it is gapping up very quickly on low liquidity and there is no significant resistance overhead.

    Some traders will fade gaps in the opposite direction once a high or low point has been determined (often through other forms of technical analysis). For example, if a stock gaps up on some speculative report, experienced traders may fade the gap by shorting the stock. Lastly, traders might buy when the price level reaches the prior support after the gap has been filled.

  3. #3
    Join Date
    Jan 2015


    In technical analysis, a break on a chart representing a sudden and large price movement accompanied by high trading volume. Generally speaking, charts do not show price gaps because price movements, even when large, occur smoothly enough to not require a break in the chart. Price gaps may occur, for example, when the price of a security suddenly doubles or halves. As with many charting terms, it may be bullish or bearish; a sudden movement upward is a bullish price gap, while a sudden movement downward is bearish. It is also called a breakaway gap.

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