Not only animals, you know, can jump, candlesticks on the trading chart can also change or jump. This is known as a trading gap. A common phenomenon that occurs when the market is volatile. What is a trading gap? And how do you use it? Let's see!
Understanding Trading Gaps
Gap trading is a phenomenon that occurs when the capital market is volatile, and a candlestick creates distance from the next candlestick. The gap that occurs on this trading chart indicates that there are no transactions executed at that price level because the price has changed drastically in a short period of time.
In price spikes or when there is a drastic price correction, it will certainly trigger your trade, this is called a "gap up" if the spike shoots up and "gap down" if the correction drops.
Gap Trading Type
Breakaway Gap
Is a condition where the next price movement is beyond support or resistance. This gap usually occurs because the price of the asset is consolidating. Either it is going uphill or showing a reversal or improvement pattern. This gap will not be filled any time soon.
Runaway Gap
Runaway gaps usually occur when the price movement disappears on the chart and creates a gap. Even though this movement is following a certain trend. This gap indicates that the price will continue to follow the previous trend, both uptrend and downtrend.
Exhaustion Gap
It is a technical signal marked by a decline in price that occurs after experiencing a rapid increase for a while before. This signal reflects a significant shift from buying activity to selling activity simultaneously.
The implication of this signal is that the rising price trend has exhausted itself so that it reverses direction. Traders usually panic and sell their assets after this gap lasts.
Common Gap
Occurs as a phenomenon without a driving factor, nor does it identify any momentum.
Factors Occurring Gaps and Tips for Exploiting Gap Trading
The gap on the chart is a zone where the price of the instrument can move up or even down sharply so that there is no price trading. which can trigger a gap in the market exchange is usually due to the publication of unexpected news that pushes the market faster.
If the news is predictable well then the market usually doesn't explode up or down. However, if there is shocking news, it is likely that there will be a gap.
The most popular way is to place a bid before the market opens after seeing a gap signal. This strategy, of course, must be accompanied by good technical and fundamental analysis so that your predictions don't jump.
Traders can also choose to place prices in liquid or illiquid positions at the beginning of the price movement assuming the gap will be filled. When the gap begins to fill, the trend will continue at a new equilibrium.
Gaps usually occur after financial reports are released to the public, and experienced traders often do this by speculating by short selling when the gap is down. But you can buy when the price is approaching support, you can also do it when the gap starts to fill to get close to the support point.
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