Thread by @Bjybnf

My 8 years of experience in 5 min.
A thread on Gap trading.

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Gap creates emptiness on the price chart. Price gaps are simply areas on the chart where no trading has taken place.

The gap is the biggest imbalance between demand and supply. The gap widened due to the aggressiveness by the buyers, I mean there are more buy orders in open than the supply available at the closing price of the first day.

There is also a gap due to the overnight price of the participant or any big news.
The smart money is trying to skip important support and resistance levels, ie if they are bullish they gap-up the price above the supply zone

Types of gap trading strategy 👇

1⃣ Breakaway (or Breakout) gaps
2⃣ Runaway (or measuring) gaps
3⃣ Exhaustion gaps
4⃣ Professional gap
5⃣ Inner gap

1⃣ What is the breakaway gap :-

Breakaway gap means breaking of an important support or resistance or important trend line in the form of a gap.Most of the time this gap is not filled quickly or not on the same day.

2⃣ Runaway (or Measuring) Gap:

After the move has been underway for a while, somewhere around the middle of the move, prices will gap, this gap is called the runaway gap. In an uptrend, it’s a sign of continuation of a trend; in a downtrend, a sign of continuation of the trend.

3⃣ Exhaustion Gap:

Near the end of an uptrend, the exhaustion gap occurred.This price action is usually designed to trap you into a potentially weak market and into a poor trade, catching stop-losses on the short side, and generally panicking traders to do the wrong thing.

4⃣ Professional GAP :-

These gaps appear at the beginning of the moves. Generally occur at the supply or demand zone. (Gap up from demand zone and gap down from supply zone) when price approaches the quality supply and demand zone.

5⃣ Inside GAP :-

Inside gaps are gaps happening inside the prior day’s range.

- Week market gap up
- Strong market gap down

However, low volume warns you of a trap up-move (which is indicative of a lack of demand in the market) after a gap up resistance.

In next thread I will tell the strategy of how to trade these gaps .

I regular post such threads on Stock market learning.

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