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One of the least studied phenomena in financial markets and in particular in Forex are the price gaps. We talk about “gap” when there are no transactions in certain prices. The market has gone through the level as through a "small station” and transactions are concluded at the next level. The missed level is empty on the chart, i.e. there is a price “hole”. The gaps appear when there are serious imbalances between buy and sell orders. Generally, it is due to important news, which is unexpected to the market. Gaps on a daily chart reflect the reaction to events that became known during the night or during holidays when markets are closed. If the news becomes available during the trading, then the gap will be formed on the hour and minute charts and within the day it will be significant.

Most popular are the “Common Gaps” – they are filled quickly and in a few days prices go back in their corridor. They occur in calm markets in the absence of a clear trend. There is no extension, the volume increases at the beginning but after a few days goes back to its average values. The absence of new highs or lows (tops or bottoms), proves the lack of motivation in "bulls" or "bears" to continue the direction. Such gaps are present on the stock markets on the day of payment of dividends.

“Breakaway Gaps” emerge when prices jump levels in the area of consolidation with high volume and a new trend starts. The longer the prices had been in the corridor before the opening of the gap, the longer the trend will last. Upward breach will be marked by new tops in the next few days, and downward breach will be marked when new bottoms are reached.
“Continuation Gaps” – they start in the middle of a strong trend that continues to reach new highs or lows (tops or bottoms). The distance from the beginning of the trend to the "gap" is the possible target. They must be accompanied with a 50% increase in volume than the average for the past few days. If prices do not reach new highs or lows for several days after the hole, it is probably an exhaustion gap.

In “Exhaustion Gaps” there are no new highs or lows over the next few days after the breach. Price movements in the direction of the trend are terminated, they turn and figuratively speaking „the hole is filled”. At the beginning they look like "continuation gaps”, but in fact they mark the end of the current trend.

“Islands Reversal” are formed by a combination of a "continuous" and a "breakaway gap” in the opposite direction. They look like an island separated from the straits without any transactions. They start as an “extension gap”, followed by a short trading period at high volume. The prices then turn leaving the price island behind. They form very rare, but their appearance records fundamental changes in the direction of the trend.

On Forex gaps hardly occur in calm times, however, in periods of high volatility they become commonplace. For example, they occur in market opening on Sunday to Monday in the presence of important news over the weekend. They are usually filled within a day or the next day at the latest.

When used properly the gaps could bring significant gains to the Forex trader for a too short time. See more in Courses 

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