<\/p>\n
A\u00a0gap<\/strong> is defined as an unfilled space or interval. On a\u00a0technical analysis\u00a0stock trade chart, a gap represents an area where no trading takes place. On the Japanese candlestick chart, a window is interpreted as a gap.<\/p>\n In an upward\u00a0trend, a gap is produced when the highest\u00a0price\u00a0of one day is lower than the lowest price of the following day. Thus, in a downward trend, a gap occurs when the lowest price of any one day is higher than the highest price of the next day.<\/p>\n For example, the price of a share reaches a high of $30.00 on Wednesday, and opens at $31.20 on Thursday, falls down to $31.00 in the early hour, moves straight up again to $31.45, and no trading occurs in between $30.00 and $31.00 area. This no-trading zone appears on the chart as a\u00a0gap<\/em>.<\/p>\n Gaps can play an important role when spotted before the beginning of a move.<\/p>\n There are four different types of gaps, excluding the one\u00a0that occurs as a result of a stock going\u00a0ex-dividend. Since each type of gap has its own distinctive implication, it is very important to be able distinguish between such gaps.<\/p>\n <\/p>\n It is quite possible that confusion between\u00a0measuring gap<\/em> and\u00a0exhaustion gap<\/em> can cause an investor to position himself incorrectly and to miss significant gains during the last half of a major uptrend. Keeping an eye on the volume can help to find the clue between\u00a0measuring <\/em>and\u00a0exhaustion gap<\/em>. Normally, noticeable heavy volume accompanies the arrival of\u00a0exhaustion gap<\/em>.<\/p>\n Some market speculators “Fade” the gap on the opening of a market. This means for example that if the S&P 500 closed the day before at 1150 (16:15 EST) and opens today at 1160 (09:30 EST), they will short the market expecting this “upgap” to close. A “downgap” would mean today opens at for example 1140, and the speculator buys the market at the open expecting the “downgap to close”. The probability of this happening on any given day is around 70%, depending on which market you look at. Once the probability of “gap-fill” on any given day or technical position is established, then the best setups for this trade can be identified. Some days have such a low probability of the gap-filling that speculators will trade in the direction of the gap.<\/p>\nTypes of gaps<\/span><\/h2>\n
\n
\n
\n
Caution<\/span><\/h2>\n
Trading gaps for profit<\/span><\/h2>\n
Examples<\/span><\/h2>\n