How to make work gaps for you

Have you looked at trading day gaps and chart formats? If you are not, you miss out on trading opportunities that, if implemented correctly, can be extremely profitable. Although there are several strategies for trading one-day templates and chart formats, this article will focus on the different types of gaps and how to take advantage of them.

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As we discussed earlier, there are several types of gaps. Gaps occur after the market is completed and before it reopens. A gap will appear in your chart, as the low at the opening of the market is higher than the high when the market closed the day before showing a possible uptrend or vice versa, as the high at the opening was lower than the low closing the market thus indicating a possible downward trend. These gaps can be caused by day-to-day financial news, global events, or simply by changing markets. The larger the gap, the stronger the probability of a trend evolving. Many traders use gaps as entry points, stance levels or as a measure of market power or weakness.

Types of gaps

Common:

There are no common gaps for any particular reason, due to the indifference of the market to a particular currency pair. These gaps are usually small compared to gaps caused by major events and should be avoided.

Separation:

The market often has strong levels of support and resistance. In fact, currencies are consolidating around 60% of the time, with traders deciding which direction to move. Seasonal trade is a good example of a gap that can grow. For example, a trading channel may expand through December for the public holidays and end in January, after the public holidays, when a vacuum can be developed that shows more market activity and a new trend.

Exhaustion:

This happens after the strong currency moves up or down. As the uptrend or downtrend comes to an end and the market sentiment shifts, a gap may develop indicating a reversal of the trend. Exhaustion gaps usually occur as traders decide to take profits and exit their positions, exhausting the trend and causing a reversal.

Runaway:

This is the opposite of the exhaustion gap. The void of escape is essentially a confirmation of a growing trend. This cannot be confirmed until the subsequent invoice action confirms that a new trend has indeed begun and the price continues to move in this direction and hence the nominal escape.

Knowing the different market conditions that can cause gaps, you can decide whether to trade and benefit from it.