Hey traders,

In this article, we will discuss a very common pattern that is called a gap.

In technical analysis, the gap is the difference between the closing price of the previous candlestick and the opening price of the next candlestick.

📈Gap up represents a situation when the price bounces up sharply at the moment of a transition from one candlestick to another. The price gap that appears between them is called a gap up.

📉Gap down represents a situation when the price drops sharply at the moment of a transition from one candlestick to another, the price gap between the closing price of the previous candle and the opening price of the next candle is called a gap down.

From my experience, I realized that with a high probability, the gap tends to be filled. For that reason, once you see a gap, consider trading opportunities around that.

Depending on the market conditions where the gap appears, there are several types of a gap to know:

1️⃣ Common gap appears in a weak, calm market. When the trading volumes are low and the market participants are waiting for some trigger, or the asset reached a fair value price.

2️⃣ Breakaway gap appears in a situation when the price suddenly breaks a structure (support or resistance) in a form of a gap. Such a gap usually confirms a structure breakout.

3️⃣ Runaway gap usually appears when the market is growing or falling sharply. It signifies the dominance of buyers/sellers and highly probable continuation. Usually, such gaps are not filled.

4️⃣ Exhaustion gap, in contrast, appears around major key levels and signifies a highly probable reversal. The exhaustion gap is usually confirmed by a consequent strong opposite movement that fills the gap.

Learn to recognize gaps on a chart and learn to interpret them. It will increase the accuracy of your technical analysis.

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