How to Profit From Market Gaps
A gap occurs in stock and financial markets when a security’s price makes a significant jump up or down with little or no trading in between, leaving a blank space on the chart. Gaps often happen after earnings reports, technical breakouts, or automated trading activity. Traders analyze gaps to take advantage of four main types: breakaway, exhaustion, common, and continuation gaps. While gap trading can offer quick profits due to sudden volatility and low liquidity, it also carries notable risks. Strategies include buying in anticipation of a gap or fading the gap by trading against it based on technical signals.
Key Takeaways
- Gaps occur on charts when a security’s price moves sharply with little or no trading in between.
- Gaps can…
