Forex Term: Gap Trading – what is a gap?

Gaps occur in trading when the open price of a candle occurs below or above the close price of the previous candle. In less liquid markets like stocks gaps can occur constantly throughout the trading day, but in the forex markets where trillions of dollars exchanges hands every day we usually only see gaps after the long weekend break, shown below:

It is commonly believed by many traders that "all gaps close" or that a pair will always "close the gap" within a few days of occurring - while we have observed this to be true many times we have seen no studies that scientifically demonstrate that this is the case.

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