What are Gaps?

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Nowler

Active member
Sep 13, 2017
757
51
38
#1
What do gaps represent on a chart?

I was under the impression that it was, in a sense, overwhelming consensus with price going that direction...

Is this an accurate assessment? Or how would you frame it?

I am predominantly coming at trading from a spread betting, forex/commodity point of view. fyi
 

Brumby

Well-known member
May 25, 2012
600
136
53
#3
What do gaps represent on a chart?

I was under the impression that it was, in a sense, overwhelming consensus with price going that direction...

Is this an accurate assessment? Or how would you frame it?

I am predominantly coming at trading from a spread betting, forex/commodity point of view. fyi
Gaps are common in stocks rather than FX because the latter allows news to be digested and then traded continuously. Gaps are significant price behaviour but needs to be understood in context like every significant price action. Consequently there are initiation gaps (aka professional gap), continuation gaps and exhaustion gaps (aka retail gap). A unique gap is the island gap. You can read all of this in "technical analysis of stock trends" as an entire chapter is devoted to it.
 

Nowler

Active member
Sep 13, 2017
757
51
38
#4
Gaps are common in stocks rather than FX because the latter allows news to be digested and then traded continuously. Gaps are significant price behaviour but needs to be understood in context like every significant price action. Consequently there are initiation gaps (aka professional gap), continuation gaps and exhaustion gaps (aka retail gap). A unique gap is the island gap. You can read all of this in "technical analysis of stock trends" as an entire chapter is devoted to it.
Just downloaded the 9th edition of that TA of Stock Trends book. When I was saving it I remembered that I previously saved a handful of articles that I was supposed to read :) I never did order that Constance Brown book after... I was meant to have a look for a cheap 2nd-3rd hand one but I never did. Something else to do today I guess.

I have seen a few tutorials on gaps but I never see them on my platform, so never really attempted to look closer into them. Perhaps my broker just shows them as candles...? I am trading Forex with a spread bet firm, on their own platform (market maker), so them hiding the gaps for whatever reason could be the likely reason I don't see them. Don't some places discourage or just ban the trading of gaps? Could have sworn I came across such a claim before...

I agree, gaps are going to be more common in stocks than in FX.

I wonder if I should change from fx spread betting and try something else for a while...
Then again, fx spread betting allows people like me to trade with small amounts of cash... so perhaps get to a level of proficiency with this first, make a little money and then move away from spread betting. The leverage I can use is useful but the widening spreads are a nuisance often for me. I would like to accumulate a wealth of trading experience with gaps too in order to add another dimension to my trading.
 

Brumby

Well-known member
May 25, 2012
600
136
53
#5
I would like to accumulate a wealth of trading experience with gaps too in order to add another dimension to my trading.
Having traded 17 years using TA, I have yet to see a resolution between opposing opinions whether gaps are closed or not. In other words, knowledge and being able to derive an edge through knowledge is not necessarily a given. IMO, the problem is because TA approach the issue from a perspective of "how" rather than "why". Price gaps happen for a reason. Not understanding the fundamental driver behind the price gap puts you into a probability mode. Trading on probability is not necessarily a bad thing provided the probability gives you a statistical edge over the long haul. Good luck with that.
 

Solas0077

Active member
May 29, 2013
227
11
28
#6
Most gaps get closed the question is how long that takes. If it takes too long then they are not useful. Maybe a study of the time to close gaps will be useful.
 

Nowler

Active member
Sep 13, 2017
757
51
38
#7
Having traded 17 years using TA, I have yet to see a resolution between opposing opinions whether gaps are closed or not. In other words, knowledge and being able to derive an edge through knowledge is not necessarily a given. IMO, the problem is because TA approach the issue from a perspective of "how" rather than "why". Price gaps happen for a reason. Not understanding the fundamental driver behind the price gap puts you into a probability mode. Trading on probability is not necessarily a bad thing provided the probability gives you a statistical edge over the long haul. Good luck with that.

Most gaps get closed the question is how long that takes. If it takes too long then they are not useful. Maybe a study of the time to close gaps will be useful.

Thanks for the input folks (y)
I'll think this over for a while and see what I come up with.