What are price gaps?

A price gap is an open space between two bars or candles. An empty space means that no trades were made during that time. Depending on the trend, a gap may appear when, for example, at the opening of the trend, trades are made clearly above or below the previous session’s close, or when some important information reaches the market.

 

What are the main types of price gaps?

These are the gaps:

• Common,
• Startup,
• Escapes (continued)
• Exhaustion,
• Retreat Island.

Each gap has its own characteristics and can be a sign for an investor. Some gaps tend to occur one after another.

Does every price gap mean something?

Of the above-mentioned price gaps, each can mean something, but there is one that will not quite matter to the trader, and that is the ordinary gap. Although it appears on the chart, it may not affect the trend and will only be a sign of no trades. Traders who do not want to take risks should wait for such gaps to see what they mean and how they will affect the trend and whether they mean anything at all.

Does not responding to the first gap mean not taking advantage of the situation?

Some investors who interpret the gap well can make money from it. There are also investors who, unsure of the situation, will wait to see what happens. This does not yet mean that the market situation has not been exploited. On charts, there is the so-called three-window rule, that is, three price gaps occurring in succession. A trader can take advantage of successive gaps to still make a dent in the trend.

What does the continuation gap mean?

This is a gap, during which new records are set. It usually occurs in the middle of a strong trend and sustains the previous direction of the price. It also marks the moment when more investors, who were late the previous time, join the game. If there is a continuation gap, for uncertain investors it is a sign of confirmation of the previous trend.

What signals does the exhaustion gap give?

When there is no longer a continuation gap and the strength of investors decreases, it is a sign that the market situation is about to reverse, and that is what the exhaustion gap is. It gives signals in the market for an investor to take the opposite position to the existing one.

What is an island of retreat?

A particular situation is precisely the island of reversal, because it looks like a separated piece of the chart, from the rest of it. Usually separated by two price gaps. It can signify the reversal of a short-term trend.