📌 What Is a Price Gap?
A price gap is a space that appears on the chart between two consecutive candlesticks, where the opening price of the new candle is significantly higher or lower than the previous closing price, leaving a visible gap in the price with no trading activity.
🔹 Simple Example:
Previous candle closes at: $100.
Next candle opens at: $105.
The $5 difference (with no trading in between) = Gap Up.
🔸 Types of Price Gaps:
1. Common Gap:
Often occurs in calm or sideways markets.
Not accompanied by high volume.
Usually gets filled quickly.
2. Breakaway Gap:
Appears when breaking a strong support or resistance level.
Indicates the beginning of a strong trend (up or down).
Accompanied by high trading volume.
3. Runaway (or Measuring) Gap:
Appears in the middle of an ongoing trend.
Signals continuation and strong market momentum.
Acts as a sign of trend strength.
4. Exhaustion Gap:
Appears near the end of a trend.
Suggests that the trend may be losing steam and could reverse or correct soon.
Often followed by declining momentum.
📉 Why Do Gaps Occur?
Major news or events outside regular trading hours.
Earnings reports or surprise announcements.
Global market movements, e.g., in oil, forex, or indices.
Imbalance between supply and demand at market open.
🔍 Do Gaps Always Get Filled?
The term "Gap Fill" refers to when the price retraces to cover the gap area.
Not all gaps get filled, but many do—especially:
Common gaps.
Exhaustion gaps.
Harder to fill:
Strong breakaway gaps.
Runaway gaps during strong trends.
✅ How to Trade Gaps:
1. Identify the Type of Gap First:
Is it a breakaway, continuation, or common gap?
2. Trading Strategy Based on Gap Type:
Common gap: Expect a quick retracement (gap fill).
Breakaway gap: Trade in the direction of the breakout with tight stop-loss.
Exhaustion gap: Watch for trend reversal opportunities.
3. Watch the Volume:
High volume supports strong gaps.
Low volume may indicate a false or weak gap.
📊 Practical Example with a Crypto Asset:
Pair: BTC/USDT.
On a Sunday, after traditional markets closed, BTC opened with a +$500 gap up.
After analyzing the weak volume behind the gap, the price retraced and filled the gap the next day.
📌 Final Tip:
Don’t rush into a trade just because a gap appears.
Wait to see how the price reacts, confirm the volume and gap type before making your move.
The image below shows the types of prices gaps
Do you have any questions?
Drop your questions in the comments, and I'll reply to all of them.
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