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{{Unreferenced|date=May 2024}}
[[Image:Allgaps new.jpg|right|thumb|290px|Sequence of Gaps]]▼
{{Short description|Price chart analysis concept}}
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. ▼
▲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.
For example, the price of a share reaches a high of $30.00 on Wednesday, and opens at $31.20 on Thursday, falls down to $31.00 in the early hour, moves straight up again to $31.45, and no trading occurs in between $30.00 and $31.00 area. This no-trading zone appears on the chart as a ''gap''.
Gaps can play an important role when spotted before the beginning of a move.
==Types of gaps==
There are four
* '''
* '''Common gap'''
* '''Exhaustion gap''' – signals the end of a move. These gaps are associated with a rapid, straight-line advance or decline. A reversal day can easily help to differentiate between the Measuring gap and the Exhaustion gap. When it is formed at the top with heavy volume, there is significant chance that the market is exhausted and prevailing trend is at halt which is ordinarily followed by some other area pattern development. An Exhaustion gap should not be read as a major reversal.▼
▲* '''Common gap''' is also known as ''area gap'', ''pattern gap'' or ''temporary gap''. They tend to occur when trading is bound between [[support and resistance]] level on a short span of time and market price is moving sideways. One can also see them in price congestion area. Usually, the price moves back or goes up in order to ''fill the gaps'' in the coming days. If the gap is filled, then they offer little in the way of forecasting significance.
* '''Measuring Gap'''
▲* '''Exhaustion gap''' signals end of a move. These gaps are associated with a rapid, straight-line advance or decline. A reversal day can easily help to differentiate between the Measuring gap and the Exhaustion gap. When it is formed at the top with heavy volume, there is significant chance that the market is exhausted and prevailing trend is at halt which is ordinarily followed by some other area pattern development. An Exhaustion gap should not be read as a major reversal.
▲* '''Measuring Gap''' is also known as a ''runaway gap''. A ''measuring gap'' is formed usually in the half way of a [[price]] move. It is not associated with the congestion area, it is more likely to occur approximately in the middle of rapid advance or decline. It can be used to measure roughly how much further ahead a move will go. Runaway gaps are not normally filled for a considerable period of time.
==Caution==
Line 25 ⟶ 24:
==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
==Examples==
{{gallery
|width=250
|File:measuringgap new.jpg|
|File:exhaustiongap new.jpg|
|File:commongap new.jpg|
|File:breakawaygap new.jpg|
}}
==References==
{{reflist}}
{{technical analysis}}
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