Gap
19 hours agoA gap refers to a section on a chart where the price of a currency pair experiences a sudden increase or decrease, with minimal or no trading activity in between. Consequently, the bar or candlestick chart displays a "gap" in the usual price trend.
Gaps often arise unexpectedly as the perceived exchange rate between two currencies shifts, influenced by fundamental or technical factors. While gaps can occur in the forex market, they are notably less frequent than in other markets due to the continuous trading of currencies, which takes place 24 hours a day, five days a week.
However, gapping can happen when unexpected economic data is released or when trading resumes after weekends or holidays. Although speculative trading is not permitted over the weekend, central banks and related organizations can still operate in the market. This can lead to a situation where the opening price on a Monday morning differs from the closing price on the previous Friday, resulting in a price gap.
The opening price on Monday may be higher or lower than the closing price on Friday, creating a gap. If the Monday opening price exceeds Friday's closing price, it is referred to as a "gap up." Conversely, if the Monday opening price is lower than Friday's closing price, it is termed a "gap down."
Gaps can be categorized into four types:
- Common gaps: These simply indicate an area where the price has gapped.
- Breakaway gaps: These occur at the conclusion of a price pattern and signal the start of a new trend.
- Continuation gaps: Also known as runaway gaps, these happen in the midst of a price pattern and indicate a surge of buyers or sellers who share a common outlook on the price's future direction.
- Exhaustion gaps: These appear near the end of a price pattern and signify a final effort to reach new highs or lows.
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