What Is A Gap?
A gap is an area of discontinuity in the chart of an asset where the price of the asset either falls or rises from the close of the previous day with no trading taking place in between.
Based on the type of gap, it could signal either the beginning of a new trend or the reversal of a previous one.
Do Gaps Always Get Filled?
The simple answer to this questions is no, not all gaps get filled, however over 90% of gaps do get filled.
The problem you will have if you are making trades thinking that a gap will get filled every single time is that even if it does it can take a very long time.
Whilst most gaps will be filled quickly, some gaps will not be filled for months or even years.
If you are looking to make trades aiming for the gap to fill, then you need to keep in mind that not all gaps will fill and some of them will take a very long time. You will need to cut your losses and not let them turn into large losing trades just like any other strategy.
How To Trade Gaps Successfully
There are several ways to leverage gaps in the market to your advantage.
Some traders buy or sell an asset when the technical or fundamental analysis favours a gap on the day.Others traders will look for the gap to fill and profit from price either moving into the gap or away from it.
Trading For The Gap
One way to trade the gap is to buy a coin looking for the gap to be created.
This is normally done with individual coins where you can buy the coin looking for a large announcement or positive news when the markets are closed that will lead to a large gap in your favour the next day.
Another method is to buy or sell into illiquid or highly liquid positions at the start of a price movement with the hopes of a continued trend and explosive movement.
For example, you might buy a coin when it is gapping up rapidly on low liquidity with no significant resistance overhead.
Trading For The Gap To Be Filled
With this gap trading strategy you are not looking for a gap to be created, but waiting until one is created. Once you see a gap you are making a trade and looking for the gap to be filled.We know that gaps fill 90% of the time, so this is a popular trading strategy.
Using The Gap As Support Or Resistance
One of the other very popular trading strategies is looking to use the gap as a support and resistance. When price does move in and close the gap it will often bounce away and act as an area of supply or demand.
An example of this would be waiting to find a gap, waiting for it to close and then making a reversal trade looking for price to move away from the gap.
Simple Gap Trading Strategies
As we just discussed one of the simplest trading strategies is trading a reversal when the gap closes.
Checkout the example gap trade below.
First you notice that price created a gap and then it made a move higher. When you notice this you could be watching for price to rotate lower and close the gap.
When price does close the gap you could then be taking a long trade and looking to make a profit as price rejects the gap as a support level and moves back higher.
Whilst gaps close 9 times out of 10, that does not mean they always close quickly.
Gaps can often take months if not years to close.
Another word for gaps in crypto is “Fair Valued Gaps (FVG)”.