“Gap” On The Chart. What Is It?

Even though, gaps in the Forex market are quite rare, you need to know what they are and how you can use them in your trading. But firstly, we need to understand what a gap is.

“Gap” is an empty space on the price chart. Imagine the price moving smoothly up, and then there is a gap, or a window, as it is also called, and the price is even higher. Look at the example:

This happens because the price changes sharply and instantly, usually because of a force majeure circumstances or news that differs from the forecast. A window is formed between the closing level of one candle and the level of the other one’s opening.

But such situations are quite rare, most often a gap appears between the time of closing of one trading session and the opening of a new trading session. That’s why the gap is often found in those financial markets that do not work around the clock, but have a fixed time.

As you know, Forex works round the clock and it is closing only for the weekend. This means that often this may happen on the night from Sunday to Monday, when a new trading week opens. Usually, this happens when there are politician meetings during the weekend, or some finance minister have won an election. This means there was a fairly important event that entails a drastic price change.

Sometimes, the gap can be a consequence of the so-called “hole” in the data stream. However, this is a technical problem that occurs rarely.

If you see a gap, then this indicates that the price is prone to growth, if the gap is down, then to fall. There are several types of gaps:

– The gap, can be observed when the formation of the price model is completed, as a signal for the beginning of a new movement.

– The depletion gap can be observed at the end of the formation of the price model, as the last attempt of price to make a new peak or hollow.

– Usual gap, which are not part of the price model and just appear

– Gap continuation, you can observe in the middle of the price model.

So, how can you trade a gap? There is an opinion among traders that the gap seeks to close itself. By observing, we can say that in many cases this is so, and we sometimes regret that we were asleep when the market opens, as we see that the gap has already been closed, and it was easy to take 20-30 points. However, not everything is so unambiguous and in the Forex market nothing is so easily predictable. If the news or event that triggered the gap is not very serious, then the gap will close quickly. But if something out of the ordinary had happened, then you can wait for a long time to close the gap.

If the gap does not close during the first hours, and the gap is on the trend, then this indicates that the trend in the market is very strong. The only true solution in this situation will be to trade in the trend. Remember – trend is your friend.

The boundaries of the gap are very good levels of support and resistance, from these levels you can also build your own trading strategy. In general, the gap occurrence is a very interesting event for trading but it’s a pity that it’s rare in the Forex market.