Trading GAP – Types of GAP in Trading
Gap is free space in chart which show up
because of price spike, it means that no transaction in that level. Gap can be
utilized as trading opportunity. Trader can fins gap price movement in chart
bar and candlestick. Many traders said that gap can be filled back. It means
that the price will close the trading empty space. Before utilizing this
opportunity, we must remember that gap doesn’t always happen. Even it needs
long time so that the gap can be filled back. Trader needs to know types of gap
in trading. These are the types:
Gap which often happens usually will not affect the price movement significantly. It’s easy to be recognized and not supported by significant volume. In general, this gap will be closed quickly. Common gap often happens in price movement process, in trend position or even sideways.
Common gap often happens when the price starts to move in a limited range and sometimes it’s not a big gap. It could happen because of normal trading activity, e.g. low trading volume. This kind of gap usually will be filled back quickly and move to the price before the gap happen.
2. Breakaway Gap
This gap occurs in a consolidation (sideways) after the trend. Reversal trend could happen. Usually, this gap could be closed or not, depends on the strength of reversal trend. We call it Breakaway Gap because it can cause the price exits consolidation and forms a trend. Many traders think that Strong Breakaway Gap which exits the consolidation phase is stronger than non Gap consolidation. When this gap happens, it indicates that big rise sentiment from that gap and it can stand in some period of time which triggers the next price movement.
3. Runaway Gap
Runaway gap occurs in the middle of trend and usually it’s not closed. Not closed means the price doesn’t go back to the empty gap area. This gap indicates strong price movement trend. The volume in the runaway gap isn’t too important if it’s compared to breakaway gap, but it can be compared to volume average. When the volume is too extreme, this thing give us signal that Runaway Gap is exhausting gap which is signal of the end of the trend.
4. Exhaustion Gap
Gap shows fatigue sign after long rally and close to the movement climax. This gap shows diminishing market interest in a running trend, which cause reversal direction. To identify exhausting gap easily, this gap must be marked by big volume. Besides that, signal power will increase when this thing happen after the previous price made significant movement.
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