Price gaps in the stock market can be an opportunity for some traders and sometimes a disaster for other investors.
If you've heard of the price gap and don't know what it is, this series is for you:
A price gap is a price area that appears on a chart (icon) as a space or gap between candles indicating that there has been no trading in this area.
How to talk..
When there is a difference between the opening price and the closing price of the previous session.
Example: A stock closed yesterday at 10 riyals and opened today at 15 riyals. From 10 to 15, this is called a gap.
Types of price gaps:
An up gap is a jump in prices that means that demand is much greater and stronger than supply.
Down gap is a downward price jump that means supply is much greater and stronger than demand.
Reasons for the price gap..
It appears due to two factors:
- Trading hours
- Market moving news announcements
Gaps caused by trading hours are more predictable than price gaps caused by economic announcements.
Types of price gaps 4 we mention them quickly
First, the common gap.
They occur naturally and without significant events, are common, and are usually filled quickly by a price decline a few days later.
Second, the breakaway gap.
It occurs at the end of a certain price pattern to mark the beginning of a new major move where the price breaks away from previous prices to form a breakout gap or breakout.
In this case, the stock forms a new support or resistance area depending on the shape of the gap.
Third: Continuation Gap
It occurs in the middle of an uptrend or a mid-bounce and is also used as support and resistance later on just like a breakaway gap.
Fourth: Exhaustion Gap
They occur near the end of a good uptrend or downtrend and can be identified by high trading volume.