Gaps and Gap Analysis

Common Gap

By March 17, 2016 December 1st, 2018 No Comments

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To Be Expected

Most of the patterns that technical analysts look for help them to tell when the market is about to start an uptrend or a downtrend, but what if the trading suddenly seems to stop altogether? In some cases, analysts will find a common gap, generally a space in the stock chart where it appears that there were no trades for a particular stock. Although this might seem like a worrisome surprise at first, these spaces in trading are to be expected.

In most cases, there are no major events that are thought to trigger the formation of a common gap. In general, the common gap will become filled or engulfed within just a day or two of regular trading activity, which is a lot faster than other types of gaps that it could be compared to. It’s also possible that you might hear the common gap referred to as an “area gap” or “trading gap”.

The most important thing to keep in mind about the common gap is that it’s pretty common. Although it might be surprising, these lapses in trading are usually uneventful, and can usually be explained by matters not relating to the value of the stock. For instance, a stock that performs well on a particular day might encourage people to place orders for the next day in advance. These trades wouldn’t be recorded on the normal daily charts, but they would cause a big jump in price when the market opens the next day.