There are three types of gaps that we will be discussing in this chapter. They are not visible on line or point and figure charts. An important thing to keep in mind is that gaps are visible only on bar and candle charts. If this gap gets eventually filled and buying continues, then and only then can the strength be expected to continue. Similarly, when a downside gap is formed and price heads lower over the next few days, any subsequent rallies later on can be met with resistance at the upper end of the gap. If this gap gets eventually filled and selling continues, then and only then can the weakness be expected to continue. For instance, when an upside gap is formed and price heads higher over the next few days, any subsequent declines later on can be met with support at the lower end of the gap. ![]() ![]() Gaps can act as important areas of support and resistance. On rare occasions, gaps can also be found on intraday charts, especially when some major event or news comes out during the trading session. Nonetheless, when they do appear on weekly or monthly charts, they can be quite significant. They can also be found on weekly or monthly charts, but their occurrence is relatively rare on these time frames. Such a gap is called a downside gap and is considered bearish. Similarly, if current bar high is below previous bar low, there is a gap. Such a gap is called an upside gapand is considered bullish. ![]() So, if current bar low is above previous bar high, there is a gap. But what exactly does one mean by gaps? Simply said, gaps are blank regions on the chart where no trading has taken place. When combined with other tools, gaps can be quite valuable. Often, a chartist will encounter gaps on the charts across various time frames.
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