What is Gap is an issue that many investors still wonder about today. Although the term gap in forex is no longer strange, very few people know its true nature. Join Learn Forex Trading to learn about the gap term in detail. And see how to take advantage of the Gap when trading forex.
what is Gap? General information about gaps
The Forex gap is understood as the gap between the opening and closing prices. These gaps are caused by interruptions in trading activities.
Cause of the gap in the market
Gaps in the market are caused by many reasons. The first may come from economic events. With important news like inflation reports or GDP figures. Events that affect the supply and demand levels of the market also affect the gap.
Intervention by central banks will also create a gap in foreign exchange. Banks will intervene in ways such as changing buying and selling interest rates. Or change the bank’s monetary policy.
However, there are also some times when gaps do not appear, which are weekends because forex does not trade on weekends. However, during the weekend, if there is shocking news, it will push prices up or down.
See more: Way to turn yourself master what is trade forex?
Meaning of what is Gap?
The gap is the distance between two consecutive candles. Depending on the gap’s role in the technical chart, it has its characteristics. When price disruptions occur in strong support and resistance zones.
Gaps often tend to return to these areas to retest to determine the price trend before continuing the cycle. Price gaps mainly occur in areas of the standard price pattern or are filled to complete the price pattern.
Gaps often occur when a special new event or information creates a large number of participants in the market. This event disrupted the supply and demand balance, causing a strong price difference between the end of the session.
Each type of gap warns of the start of a new trend or a reversal of the previous trend. Gap is trying to go back to testing to perfect the pricing model. If either of the above two cases occurs, the gap will be filled.
Characteristics of gaps in Forex
In the financial markets, the What is Gap indicator? it is an important indicator. It is used to analyze and make assessments of the market. When a gap appears, investors can completely predict the trend. And will come up with a suitable trading plan.
However, if you only use the gap alone, the accuracy of the results will not be high. Investors can combine divergence, MACD, arbitrage,…. what is divergence? This is a phenomenon where the price moves in one direction but the indicator goes in the opposite direction. Arbitrage definition ? Arbitrage, also known as arbitrage, is the trading method that generates profits with the least risk.
What types of gaps are there in forex?
Gaps in forex are determined by the closing price of the previous candle and the opening price of the following candle.
Common gap trading trong forex
Common what is Gap? This is the most common form that can be found on the market. This type of gap will occur when there is a lot of price fluctuation and will appear on the first Monday of the week. These gaps are quite small and will be filled quickly.
The gap price difference is not much different. However, the price still follows the old trend without a reversal. That is why many traders do not choose a common gap when trading. This is considered a fairly weak signal and does not have much impact on the stock market, Forex,…
Breakaway what is Gap?
This is a type of gap that describes the price level surpassing support and resistance. This phenomenon will occur when there is psychologically shocking news for investors. And it will change the current trend of the market. This gap will be related to confirmation of a new trend when investing.
The break gap will occur at the end of the pattern when a new trend occurs. This shows that the price is breaking out of a plateau and starting to increase or decrease and then disappear. When a Breakaway gap occurs with a sharp increase in trading volume, it is likely to break the old trend.
A new phase will begin to form. When the GAP appears above, the Breakaway gap acts as support. On the contrary, when they appear below, they will act as resistance.
Runaway gap trading trong forex
Runaway gap, also known as continuation gap. This gap is increasingly seen in stocks compared to forex, where price declines or increases are identified.
They will continuously be unfilled as the market develops and changes drastically according to current trends. If the trend is up, the gap is still a gap up. They do not hesitate to learn many ways to buy stocks.
On the contrary, the decreasing gap reflects the pessimistic psychology of shareholders. They decided to sell strongly because they believed that the possibility of price recovery was small.
Gap reversal when investing in forex
This type of gap when reversed will create a gap up followed by a period of sideways and finally a move down. After completing that process, the gap will reverse but will not go sideways but straight up.
When faced with this situation, many investors placing sell orders will fall into a negative account situation. There are a few investors who hope that they will reverse and hug, then fall into a situation of burning their accounts.
When will the gap be filled in forex trading?
When the price fills the gap, traders use this time to place orders. However, compliance does not always occur. Additionally, filling the gap may not happen immediately.
Here are some cases where price gaps are encountered: gaps are seen in strong support and resistance zones. Price retests to reconfirm the trend before increasing or decreasing.
The gap appears in the price model and fills the model until the end. When investors know how to exploit the ability to fill the gap, they have a business advantage. Additionally, after closing the gap, investors can often find recovery opportunities as the price returns to its original direction.
See more: Instructions for registering an XTB account
How to trade in the forex market of what is Gap?
Once the gap is filled, it is time for investors to look for trading opportunities. However, there are 4 types of gaps, so which type should you use to achieve high efficiency? And does just using the gap to devise an investment strategy yields the best results?
Forex trading is most effective when investors know how to combine technical analysis tools. As in this case, investors should use gaps in combination with other technical analysis methods.
Such as candlestick reversal patterns, price patterns, support, and resistance to achieve trading efficiency. To effectively trade the gap, investors can look for the gap pattern during major news events or on weekends.
Conclude
Above is the answer to the problem of what is Gap, hopefully, the information that Learn Forex Trading provides you will be applied accurately in investing. Besides using gaps, investors can refer to more technical analysis knowledge to apply.
FAQs
How long will the gap phenomenon in foreign exchange last?
The gap phenomenon can last for a few days or even just a few hours
What are the potential risks when using gaps to trade?
With the gap trading strategy, it is easy to encounter reversals and cause investors to lose money.
What indicators should I combine to trade?
Currently, there are many popular indicators, investors can combine MACD, Fibonacci, etc. to trade.
