Have you thought about trading gaps in one day patterns and chart formations? If you don't, you'll miss out on trade opportunities that, if applied correctly, can be extremely profitable. Although there are many strategies for trading in one-day patterns and chart configurations, this article will focus on the different types of gaps and how to take advantage of them.
As we discussed before, there are different types of gaps. Gaps occur after the market closes and before reopening. A gap will appear in your chart where the low price when the market is open is higher than the high price when the market closes today before indicating a possible uptrend, or vice versa, the higher price at the opening is lower than the low price when the market closes and thus indicates a potential downtrend . These gaps can be caused by overnight economic news, global events, or just a change in market sentiment. The larger the gap, the stronger the probability of developing direction. Many traders use gaps as entry points or stops or as a measure of market strength or weakness.
Types of gaps
Common gaps occur for no specific reason because the market is indifferent to a particular business pair. These gaps are usually small when compared to those caused by major events and should be avoided.
The market often has strong levels of support and resistance. In fact, the currencies are in a consolidation phase of almost 60% of the time as traders decide the direction in which they will move. Seasonal trading is a good example of a gap that may develop. For example, the trading channel could evolve during December for holidays and end in January, after the holidays, when a gap develops indicating more market activity and a new direction.
This happens after the strong currency moves either up or down. With the end of the uptrend or downtrend and market sentiment ebbing, a gap may develop indicating a trend reversal. Fatigue gaps usually occur when traders decide to take profits and exit positions effectively, leading to exhaustion of the trend and reversal.
These are the opposite of the fatigue gap. The fugitive gap is basically an emphasis on the developing trend. This cannot be confirmed until the subsequent price action confirms that a new trend has already started and that the price is still moving in that direction and therefore the wild category.
By knowing the different market conditions that may cause loopholes, you can determine if you want to enter into a trade deal and profit from them.