Gap (chart pattern): Difference between revisions

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{{Unreferenced|date=May 2024}}

{{Short description|Price chart analysis concept}}

[[File:Allgaps new.jpg|right|thumb|290px|Sequence of Gaps]]

A '''gap''' is defined as an unfilled space or interval. On a [[technical analysis]] chart, a gap represents an area where no trading takes place. On the Japanese candlestick chart, a window is interpreted as a gap. Gaps are spaces on a chart that emerge when the price of the financial instrument significantly changes with little or no trading in between.

In an upward [[Market trend|trend]], a gap is produced when the highest [[price]] of one day is lower than the lowest price of the following day. Conversely, in a downward trend, a gap occurs when the lowest price of any one day is higher than the highest price of the next day.

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==Trading gaps for profit==

Some market speculators "Fade" the gap on the opening of a market. This means for example that if the [[S&P 500]] closed the day before at 1150 (16:15 EST) and opens today at 1160 (09:30 EST), they will short the market expecting this "upgap" to close. A "downgap" would mean today opens at, for example, 1140, and the [[speculator]] buys the market at the open expecting the "downgap to close". The probability of this happening on any given day is around 70%{{Citation needed|date=May 2019}}, depending on the market. Once the probability of "gap fill" on any given day or technical position is established, then the best setups for this trade can be identified. Some days have such a low probability of the gap filling that speculators will trade in the direction of the gap.

==Examples==

{{gallery

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|File:measuringgap new.jpg|<{{center>|Measuring gap</center>}}

|File:exhaustiongap new.jpg|<{{center>|Exhaustion gap</center>}}

|File:commongap new.jpg|<{{center>|Common gaps</center>}}

|File:breakawaygap new.jpg|<{{center>|Breakaway gap</center>}}

}}