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Gaps

A gap occurs when a commodity opens at a price higher than the high of the previous day or lower than the low of the previous day. By definition, the gap remains intact if it's not “filled” during the trading session. In other words, on a gap up day, the market never traded low enough to equal or exceed the high of the previous day on the downside. On a gap down day, the market was never able to trade high enough to equal or exceed the low of the previous day on the upside. The four major types of gaps are identified easily on the daily bar chart by a space.

Common gaps

The majority of gaps are more likely to be filled sooner rather than later. Most daily gaps are filled during the same trading session, and of those that aren't, more often than not, they are filled within a day or two. Because these are the most common variety, they are known as common gaps. They might occur, for example, as the result of a government report, but the news usually is not strong enough to change the major trend, and the gap is filled quickly. Common gaps are seen often in thin, or low-volume markets and are rarely significant. The trick is to be able to differentiate the common variety from the other three. The other three varieties are important technical tools that have powerful forecasting abilities.


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