Gaps in crypto trading

Although the crypto market trades 24 hours a day, the Bitcoin Futures Contract on the Chicago Mercantile Exchange (CME) does not. It closes on Friday and opens on Sunday. This means that there is a regular price gap between the closing price on Friday and the opening price on Sunday. The gap can also occur on holidays when the CME is closed. Although the CME does not have direct exposure to bitcoin, it is often seen as a tool especially for institutional valuation of BTC.

Disclaimer: Our content is intended to be used and must be used for informational purposes only. It is very important to do your own research and analysis before making any investment based on your personal circumstances.

More about gaps in trading…

A gap is simply a hole and these are visible if you have a graphic representation with Japanese candlesticks, bar charts etc… This is not visible if you are on a graphical representation with curves. Gaps appear on the charts mainly for two reasons: trading hours (market opening/closing) and announcements that shake up the market in a violent way. 

In the end, the gaps make it possible to interpret the psychology of the market. They can be used to detect a reversal, a continuation of a trend or to confirm a trend break. 

As a rule of thumb, the larger the gap, the more likely a trend will develop.

The 4 different types of gaps:

These most common gaps are not unique to crypto trading. They are often used in the traditional market such as forex and stocks as well. 

  • The Common Gap

The common gap is generally filled quite quickly. It occurs in markets with no real trend or in a market in the process of “range”. As the name implies, this type of gap can happen often and it tends to get filled rather quickly; with no major preceding events. 

  • The Breakaway Gap

Also known as the Rupture Gap to some, the Breakaway Gap is rarely filled. This type of gap identifies a strong price movement through support and resistance—when price gaps either above resistance or below support. The Breakaway Gap is most often for the confirmation of a new trend.

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  • The Runaway/Measuring Gap

The Runaway or Measuring Gap takes a longer time to get filled. This type of gap forms in the middle of a trend and it usually confirms the continuation of the trend. In most cases, the Breakaway Gap precedes the Runaway Gap, showing a continuation of the trend.

  • The Exhaustion Gap

The Exhaustion Gap happens when there is a significant shift from buying to selling activity over weeks prior after a rapid rise in price; and it eventually breaks lower in price. This also indicates that an upward trend is about to end soon.

 

Conclusion

Technical analysis is a fascinating subject as it tells the story of what the market is doing and its potential next move; all riddled with emotions. It is almost like watching a telemovie. 

Undeniably, to be a good trader, besides a good grip over your emotions and strategy, it is important that you have a good grasp of this skill. 

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