A price gap where one candle opens significantly higher or lower than the previous candle's close, leaving a visible space on the chart with no trading activity.
What Is a Gap?
A gap occurs when a candle's open is significantly different from the previous candle's close, creating a visible empty space on the chart where no trading occurred. A gap up means the open is above the prior close. A gap down means the open is below the prior close.
Gaps in Forex
Because forex trades nearly 24 hours during the week, gaps are uncommon on intraday charts. They primarily occur at the Sunday/Monday weekly open, when the market reopens after the weekend. Events over the weekend (elections, natural disasters, central bank interventions) can cause EUR/USD or GBP/USD to open with a gap.
Weekend gaps on forex pairs often "fill," meaning the price moves back to the Friday closing level within the first few sessions of the new week. This gap-fill tendency is a popular short-term trading strategy.
Types of Gaps
In broader technical analysis, there are four gap types: common gaps (small, fill quickly), breakaway gaps (at the start of a new trend, often do not fill), runaway/continuation gaps (in the middle of a trend), and exhaustion gaps (near the end of a trend, fill quickly). In forex, most gaps are common or breakaway gaps occurring at the weekly open. Understanding which type you are seeing helps determine whether to trade for the fill or trade in the gap's direction.
Related Terms
Abandoned Baby
A rare three-candle reversal pattern where a doji gaps away from both the preceding and following candles. Bullish when at a low, bearish when at a high.
Breakout
When the price moves decisively above a resistance level or a chart pattern boundary, signaling potential continuation in the breakout direction with increased momentum.
Slippage
The difference between the expected fill price and the actual fill price of an order. Slippage occurs when market conditions change during order execution.
Volatility
The degree to which a currency pair's price fluctuates over a given period. High volatility means large price swings; low volatility means the price moves in a narrow range.
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