My Trading Skills® is a registered trademark and trading name of PMJ Publishing Limited. As a rule of thumb, here are some points traders need to consider when trading gap:Ĭommon gaps should be traded in the opposite direction, as the market often fills the gap shortly after they occur.Ĭontinuation gaps signal a healthy and strong underlying trend, and traders can look to enter in the direction of the trend after a continuation gap occurs.
Gapped meaning how to#
A gap up or gap down can create profitable trading opportunities if you know how to trade them correctly. This is especially true with common gaps, and can be used to build a trading system around them.ĭepending on the type of gaps formed, traders can build a trading strategy and try to profit on them. They signal that the trend is starting to lose momentum, and that a potential reversal is ahead.įilled gap – After a gap forms, markets often fill the gap between the closing and opening price. They signal that a strong buying pressure exists in uptrends, or that a strong selling pressure exists in downtrends.Įxhaustion gap – Exhaustion gaps form during strong uptrends or downtrends, but in the opposite direction of the underlying trend. They can also form during breakouts of major chart patterns, and can be intensified by a high trading volume.Ĭontinuation gap – Continuation gaps occur in the middle of strong uptrends or downtrends, in the direction of the underlying trend. They can also occur in the middle of the trading day in times of strong buying or selling pressure.īreakaway gap – A breakaway gap usually occurs at top of uptrends and at the bottom of downtrends, signalling a potential trend reversal. They frequently occur in the stock market when a new trading day starts, or in the Forex market after the weekend trading pause. Here’s a list of the most common types of gaps:Ĭommon gap – As their name suggests, these are the most common gaps in the market. Important events such as earnings releases and company-related news can impact the market sentiment after the stock closes, leading to gaps in the price of a stock when the stock opens.ĭepending on the current market condition, not all gaps are the same. In the stock market, you’ll usually find gaps after a trading day closes and the market opens the next day again. This can even happen in markets which usually have a high volume of trading, such as the Forex market. A gap usually occurs in times of low market liquidity, when there are not enough buyers and sellers to prevent sudden drops and spikes in the price.
While we’ll focus on stock gaps, they can also appear in any other financial market. Gaps occur when the opening price of a stock differs from its closing price.
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