The exhaustion gaps are the fundamental patterns to predict the reversal of bearish patterns or the reversal of bullish patterns. The exhaustion gap is a kind of final leg of a price pattern indicating the final attempt of the market to touch new highs or lows of the prices.It tells traders a precise area of the price gap where traders can apply their gap trading strategy. The common gap is the gaps that represent the trader’s preferred trading area of the price gap.The breakaway gaps are very popular for indicating a change in direction or a new trend. The breakaway gaps that occur at the end of a price pattern indicating a break-up or break down.There are four most common and widely used types of market gap patterns. They are extremely helpful in financial trading because they make the market’s picture very clear. These gaps are in the limelight since the inception of the technical analysis. It tells traders about something important happening to the fundamentals or the psychology of the traders. The market gap tells traders about the price movement. An imbalance in the supply and demand also causes market gaps. The selling pressure causes stock prices to go lower on the opening from the closing of the previous day. Market gaps may also occur as a result of significant selling pressure. For example, after a win in the election by an unexpected party affects the market as it happened recently when European recovery was badly affected by the possibility of an anti-austerity party coming into power in Italy. Financial market gaps arise whenever the market presents something unexpected because of an event or a related event occurring somewhere in the world. Traders generally consider an up gap as bullish and a down gap as bearish.Ī pertinent question arises here that why do the market gaps occur in the first place? The answer is quite a simple one. On the other hand, if the high price after the closing of the market is lower than the low price of the last day, it forms a down gap. When the low price after the closing of the market is higher than the high price of the last day, it forms an up gap. Gaps is a common term used in technical analysis further divided into two, gap up and gap down. Zero tradings within a particular price range occur between the closing point of one day’s market and the opening of the next day’s. ![]() A gap is an unfulfilled area on the technical analysis chart that shows there was no trading activity in that area.
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