How gaps work for you

Have you considered trading gaps in one day patterns and chart formations? If you don't & # 39; t, you miss out on trading opportunities that, if applied correctly, can be extremely profitable. Although there are different strategies for trading one-day patterns and chart formations, this article will focus on the different types of gaps and how to take advantage of them.

gaps

As we discussed earlier, there are different types of gaps. Gaps arise after the market is closed and before it is reopened. A gap is shown in your chart where the low opening price is higher than the high price when the market closed the day before a possible upward trend was indicated or, conversely, the high opening price was lower than the low price at the close of the market, indicating a possible downward trend. These gaps can be caused by & # 39; night economic news, world events or just a change in market sentiment. The greater the gap, the greater the chance that a trend will develop. Many traders use gaps as entry points, stop levels or as a measurement of the strength or weakness of the market.

Types of openings

Common:

Common gaps occur for no special reason as a result of market dependence on a specific currency pair. These gaps are usually small compared to gaps caused by major events and should be avoided.

Break away:

The market often has strong levels of support and resistance. Currencies are in fact about 60% of the time in a consolidation phase, while traders decide in which direction they will move. Seasonal trade is a good example of a possible gap. For example, a trade channel may develop until December before the holidays and end in January, after the holidays, when a gap may emerge that points to more market activity and a new trend.

Exhaustion:

This happens after strong currencies move up or down. As the upward or downward trend comes to an end and market sentiment shifts, a gap may arise that points to a reversal of the trend. Exhaustion deficits usually occur when traders decide to take profits and leave their positions to effectively deplete the trend and bring about a turnaround.

Run away:

This is the opposite of the exhaustion gap. The runaway gap is essentially the confirmation of a developing trend. This cannot be confirmed until the subsequent price action confirms that a new trend has indeed started and the price continues to move in that direction, ie the runaway denomination.

By knowing the different market conditions that can cause gaps, you can determine whether you want to enter into a transaction and benefit from it.