Gap
What is the Gap in Trading?
A Gap in trading happens when the price of a financial instrument opens or moves to a different level without any trading taking place in between. In other words, it’s a break on the price chart where no trades occurred, often appearing like a blank space because the market “jumped” instead of moving smoothly.
For example, imagine EURUSD closed on the previous trading day at 1.1020, but opened today directly at 1.1055. The space between 1.1020 and 1.1055 is called a Gap.
Why Do Gaps Happen?
Gaps usually occur because of important news, sudden market sentiment shifts, or major events that influence price movements. While gaps often appear when normal trading activity is paused (such as after weekends or holidays), they can also form while markets are open, for example, during unexpected news releases or economic data announcements.
They are most common after weekends or holidays, and when trading resumes, prices adjust quickly, creating the visible gap on charts.
Gap Trading Strategies
Because gaps often signal strong moves or pullbacks, many traders use them in their analysis through different gap trading strategies.
- Overnight Gap Trading Strategy – When markets close and then reopen at a much higher or lower level the next day, traders look for opportunities to benefit from this jump.
- Fair Value Gap Trading – Traders look for situations where the market moves away from what they believe is the “fair value,” and the gap helps them spot those imbalances.
- General Gap Trading Strategies – These include buying or selling depending on whether the price is expected to continue in the gap’s direction or to “fill” the gap by moving back to the previous level.
Other Glossary Terms
G
- Going Long
Going long means buying a financial instrument, like a currency pair, with the expectation that its price will rise so you can sell later at a higher price for profit.
- Going Short
Going short means selling an asset first, expecting its price to drop, then buying it back later at a lower price to keep the difference as profit, the opposite of going long.
- GDP (Gross Domestic Product)
Gross Domestic Product (GDP) measures the total market value of all goods and services produced within a country over a specific period, reflecting its overall economic size and performance.
- GMT (Greenwich Mean Time)
Greenwich Mean Time (GMT) is the time at the Prime Meridian in London, serving as a global reference for coordinating trading sessions and market activity across different time zones.
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