Definition of Gap in Forex Market

Price gaps in candlesticks are the result of erratic price movements. Price gaps can be caused by a variety of factors, particularly during strong upward and downward stock price movements.

In an uptrend, the stock price shows the market's strength and the demand for high volumes, such as a fierce scramble. In contrast, a downtrend reflects a recessionary weakening of stock prices to the extent of a significant scramble to sell, such as a response to the news. However, if it is a simple gap, it usually occurs when the graph moves wildly, especially during sideways price movements.

Types of Gaps in the Forex Market

The following are the four types of gaps:

1. Common Gap or Area Gap

Common Gap has little importance. It frequently occurs during tepid buying or selling periods, or between support and resistance without breaching support or resistance. This can be easily observed from the stock's volume compared to the moving average, accompanied by sideways price swings.

2. Breakaway Gap

Breakaway Gap is a gap that resembles a chart price that tends to move in both upward and downward directions, while the volume also increases. The price moves sideways, typically caused by the market awaiting news. When news is released, demand or supply increases, resulting in a price gap. If a gap occurs in this way, you find a time to buy or sell immediately. In addition, gap can also be used as support and resistance in price movements.

3. Runaway Gap

A runaway gap is a gap that occurs during a strong move in a specific direction. Typically, it occurs following a breakaway gap type with a precise price direction. For example, if the price moves in a consistent upward direction, it will create a price gap. Assuming the price trend remains strong, the price may continue to rise.

4. Exhausting Gap

An exhausting gap is a gap to be aware of in an uptrend. It resembles an island in the middle of the sea, also known as Island Reversal. The market is exhausted and will soon change direction with heavy trading volumes. Therefore, when encountering gaps like this, investors should prepare to close the order and place the order in a new direction. You may also consider the RSI, Overbought /Oversold value together before opening the order. There are many reasons for the occurrence of gaps. Whether it's an imbalance of buying and selling pressure in the Forex market or a gap is frequently observed on Monday mornings because investors desire to rush to buy or sell when the market opens.

Conclusion

From the article above, you can learn the gaps and kinds in the Forex market. This article will be helpful to all traders.

However, during a market with high volatility or an imbalance of buying and selling pressure, there might be no better times to trade for beginner traders. If you want to trade, you should know how to manage risks and calculate trade lots based on your capital. This will help you avoid losses that can wipe out your portfolio. You can learn more about investment knowledge on the Fxtoday’s website.

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