Gap

A price gap occurs when the price of a financial instrument opens a new trading session at a level significantly different from the previous session's closing price, with no trading recorded at the price levels between them.

Gaps typically arise from events occurring outside market trading hours, such as unexpected economic news, weekend market closures in forex, or corporate earnings releases in the stock market.

Common types of gaps:

• Continuation Gap: Appears within an existing trend and confirms its continuation.
• Reversal Gap: Appears at the end of a trend and signals a potential reversal.
• Weekend Gap: Common in forex between Friday's close and Sunday's open.

Gaps represent an added risk for traders, as stop-loss orders may be executed at a price significantly worse than the specified level due to slippage caused by the sudden price jump. A common mistake is leaving positions open before weekends or major events without accounting for potential gap risk.

Price gaps frequently appear on platforms like EVEST at the open of a new trading session following a weekend or in the wake of impactful news released outside official trading hours. Gaps do not adhere to fixed specifications in terms of size; they can be minor, spanning only a few pips, or severe, reaching dozens of points in highly volatile instruments such as cryptocurrencies or corporate equities following earnings announcements. One of the main advantages of understanding gaps is the ability to use them as an analytical signal to anticipate trend continuation or reversal, particularly when categorized into continuation, reversal, or forex weekend gaps. However, their risks include stop-loss orders executing at levels far worse than specified due to slippage caused by the sudden jump, as well as the difficulty of closing positions at desired prices during a gap. A common mistake is leaving trades open ahead of extended holidays or major economic data releases without factoring in the probability of a gap against the position, along with failing to adjust position sizing to accommodate this added risk. Gaps are particularly associated with the forex market through the well-known weekend gap, which occurs between Friday's close and Sunday's open due to the halt in institutional trading over the break.