Introduction:

The difference that lies between the opening and closing prices of  two continuous candles is called a gap.

The gap might occur when the price moves around two trading periods or when it skips two specific prices. The gap can be easily spotted on a chart as it creates a void on it. Simply put, gap is the area of the timeframe in the market where no trading occurs. 

When the market is volatile the traders can make profits when large jumps happen. Gaps are the areas where the price of a security will move with sharpness. Either there will be a sharp decline or a  sharp increase. There is either no or very little trading that happens between these two areas. 

As a result, the chart of the asset can show a gap in the normal price and its pattern. The optimistic trader can exploit these areas of trading in order to earn a profit.

What is gap trading?

Gaps occur mostly because there has been a technical factor that underlies in the whole situation. For example. If the earnings of a firm are much higher than what the market expected, the stock price might go up, without significant buying. The next day, it can move much higher. This can create a gap in between the candlestick for that particular day. This phenomenon is very common in the forex market. 

What are the pros of gap trading?

 

  • Restrictionless: For directional trading in the forex, there is no restriction in the Fx market. The trader can easily buy the currency pairs, in the sense its value will increase and sell (in a sense, the value decreases).

 

 

  • Higher use of leverage: The brokerage company offered the leverage to the investor because with the help of the leverage amount the investor only needed to invest the margin money into the trading account.

 

 

  •  Know the try and exit points: The investor knows the entry and exit points of the trading, the gap is easily identified by the traders to invest their money.

 

  • More used in forex: The gap trading is more used in the forex market which is based on the 5 minutes charts. The strategy automatically detected the gap between the price fluctuations.   

 

How many types of gap trading strategies are there?

 

  • Runaway gap – The runaway gap means the point where the price of the assets at sequential price points; there is no such trading activities where the point starts to ends. 

 

 

  • Common gap-  It is the type of gap that is refilled after a couple of days. The common gap is also known in the market as a are gap or trading gap. 

 

 

  • Exhaustion Gaps – It is the technical signal which markets on a chart with a lower price. This signal reflects the buying and selling activity of the trader and falling demand for a stock.

 

  • Breakaway gap – The breakaway gap is filled when the price gap above the support or resistance area occurs in another type of chart patterns like a triangle, cup and handle, head and shoulder, round bottom or top, etc. 

Which are the best brokers in the market?

 

  • Brokereo

 

Brokereo is the operating name of the Concorde Investments (Cyprus) Ltd and it is regulated and sanctioned by the Cyprus Securities and Exchange Commission (CySEC). The trader can trade on 300+ CFDs assets including stocks, metals, cryptocurrency, commodities and forex. 

The brokerage giants use MetaTrader 4 platform for trading. The broker provides a wide range of educational resources to the traders such as articles, ebooks, courses, tutorials, and VOD. The broker provides full time customer support to the traders from Monday to Friday 8.00 am to 17.00 pm GMT.

 

  • T1Markets 

 

T1Markets is the representative name of the General Capital Brokers Ltd (GCB). It was founded in 2020 and it is sanctioned and approved by the Cyprus Securities and Exchange Commission (CySEC). The broker offers three types of trading accounts such as silver, gold and platinum. THe brokerage company offers 300+ CFDs instruments on a variety of assets like commodities, stocks, cryptocurrency, forex, metals and indices.

The Bottom Line:

Trading in gaps can be a hard task. Know what you are doing and make sure that there are no errors in terms of calculations, atleast. The market can move the way it wants to but the trader needs to be forever prepared for the worst.