“Gap” refers to a time interval or interruption. In financial terminology, a market gap is the absence of a quote for a certain period of time with a change in the quote price and when there is a new quote available again in the market the Market Gap appears On the Japanese Candlestick chart.
Gaps can be frequent in the forex and other CFD market and price gaps can appear on the stock market chart mainly due to two factors (Trading Times – News That Moves the Market).
Mostly, the price gap consists in the first minute of the Market Opening (on Monday) and is caused by a change in the volume of contracts and in the last minutes before the Market Closes (on Saturday). This change in the volume of contracts is caused by either some political and economic news or a change in the volume Options contracts for large commercial companies in general.
There are different types of price gaps:
Common Gaps: This type of gap occurs naturally and without events where the trading volume on the stock is weak.
Breakaway Gaps: are exciting in their own right and occur when the price suddenly jumps out of its price range or the stock’s narrow volatility range.
Runaway Gaps: Occur as a result of increased interest in the stock, as speculators took the decision to buy the stock suddenly, so that the stock rose higher than the previous day’s closing after speculators despaired of waiting for the stock price to decline when it rose at the beginning of the stock’s movement.
Exhaustion Gaps: They occur near the end of an uptrend or downtrend. This type of gaps can be identified with a high trading volume and a high price difference between the previous day’s close and the new price opening.
The market gap theory is a part of Technical Analysis of stock markets and the price gap is a good level of technical support or resistance, depending on the direction of the market.
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