What Do You Mean By Gap Trading And Its Types?

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The stock market has become a common destination for those who are trying to make a different type of trading operation in their career. Out of these, many strategies are used regularly by the traders because they have been tested, and it has been found that they are good enough for use. However, there are some strategies in the market which might not prove to be as conventional as the others. These can bring in a good amount of profit as well if the trader plays his or her cards right. Gap trading is one of these methods which have proved to be helpful in terms of unconventional trading.

What Do You Mean By Gap?

This is the very first question that comes to your mind when you are trying to decipher the meaning of gap trading. The gap can be described as a situation that can be expressed in the financial market as a sharp rise in prices. The gap created in the market is in the terms of price rise. Different types of time frames must be considered when the trader wishes to invest in this kind of trading. The gap can also be viewed as a break that is perceived between two candles. Gap trading can be handled when the trader understands that the price rise or fall can be used to his or her benefit.

Different Types Of Gaps In The Market

It has been found by research work that there are four types of gaps in the market. These can be used in different manners if the trader is specialized enough to understand their differences. Let us get to know a bit about these gaps in the market.

  • Common Gap

As you can guess by the name, it is the most common type of gap which can be found in the market. This kind of gap appears in the market when there are different types of trading ranges. The appearance of this kind of gap can indicate that the traders might not be interested in this kind of trade.

  • Breakaway Gap

This kind of gap indicates that there might be a substantial amount of change in the market which can be registered in the major trade figures. There are certain signals which can help the trader to understand if this kind of trade is being conducted in the market or not.

  • Measuring Gap

Measuring gaps are those which are formed within the common trends of the market. This gap will continue as long as the trade continues to grow in the market.

  • Exhaustion Gap

It is very strongly believed that the exhaustion gap is visible in the market as soon as the trend approaches its end. You have to wait for this gap to appear when the prices across the trades are decreasing.

 

Conclusion

You can easily understand from this data that gap trading might not be the easiest thing to pursue when you are in the market. Different indications in the market can help you to understand the scope of gap marketing easily. Till you understand these features well, it will be best if you refrain from investing in this area.