What is a price gap?
A price gap appears on the price chart as a blank space, and the blank space represents the time when there was no trading activity in that particular price level.
4 Types of Price Gaps
1. A breakaway gap happens when the security traded in a narrow range for some time, and then the security jumps to a different price level. This indicates interest in the security to test a different price level.
2. A common gap happens because of traders daily buying and selling activity.
3. A continuation gap is a measuring gap to determine if the current trend will continue.
4. An exhaustion gap is a gap that happens toward the end of a trending period. This can be a sign of a price reversal is about to happen.
How to trade the price gap?
Traders should trade in the direction of the breakaway gap and continuation gap. Traders should consider carefully before adding to their current position when they encounter an exhaustion price gap.
What are some of the reasons one may fail to trade the price gap?
Possibly due to misinterpreting the exhaustion gap as a continuation gap, and possibly misinterpreting the bull or bear trap as a breakout gap. Possibly it was initially a continuation gap or a breakout gap correctly identified, but suddenly the trend changed direction and trapped the traders.
Thank you for reading!
Greenfield
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Disclosure: Chart interpreted and article prepared by Greenfield. A market idea by Greenfield Analysis LLC for educational material only.
A price gap appears on the price chart as a blank space, and the blank space represents the time when there was no trading activity in that particular price level.
4 Types of Price Gaps
1. A breakaway gap happens when the security traded in a narrow range for some time, and then the security jumps to a different price level. This indicates interest in the security to test a different price level.
2. A common gap happens because of traders daily buying and selling activity.
3. A continuation gap is a measuring gap to determine if the current trend will continue.
4. An exhaustion gap is a gap that happens toward the end of a trending period. This can be a sign of a price reversal is about to happen.
How to trade the price gap?
Traders should trade in the direction of the breakaway gap and continuation gap. Traders should consider carefully before adding to their current position when they encounter an exhaustion price gap.
What are some of the reasons one may fail to trade the price gap?
Possibly due to misinterpreting the exhaustion gap as a continuation gap, and possibly misinterpreting the bull or bear trap as a breakout gap. Possibly it was initially a continuation gap or a breakout gap correctly identified, but suddenly the trend changed direction and trapped the traders.
Thank you for reading!
Greenfield
Remember to click "Like" and "Follow!"
Disclosure: Chart interpreted and article prepared by Greenfield. A market idea by Greenfield Analysis LLC for educational material only.
Comment:
The exhaustion gap happens toward the end of a trending period. An exhaustion gap can be a sign of a price reversal is about to happen.
However, the example for the chart above is a possible exhaustion gap or a continuation gap, so the definition for this gap should be instead:
This type of gap happens in the gray zone. This can be a sign of a price reversal is about to happen or it may be a continuation of the current trend.
Thank you for reading!
Greenfield