What are the Olymp Trade Trading Gaps?
Trading gaps are areas along the price charts where prices move sharply up or down leaving remarkable spaces in between the charts.
This means the next candlestick opens at a price higher up or lower down the closing price of the previous candlestick. Always leaving a remarkable gap between the two candlesticks which we refer to as a trading gap.
Trading gaps are broadly classified into two: a gap up and a gap down.
A gap up occurs when the opening price of a particular candlestick is higher than the previous candlestick’s high price. A gap down on the other hand occurs when the opening price of the beginning candlestick is lower than the previous candlestick’s low price.
Types of Trading Gaps in Olymp Trade and What they Signify.
We mentioned the broad classification of trading gaps during the introduction. However, trading gaps are further divided into 4 types which we are going to handle in-depth.
The four types of trading gaps are;
- Exhaustion gaps.
- Continuation gaps or Runaway gaps.
- Breakaway gaps.
- Common gaps.
1. Exhaustion gaps.
This gap type a trend is about to give up or let go. Exhaustion gaps occur near the end of a particular trend as the final price activity before the trend reverses. This means, such will be the last gap to occur in that direction of a trend and then a new trend will begin to form.
Exhaustion gaps will occur on either an uptrend or a downtrend.
An Exhaustion gap occurring near the end of an uptrend signals the last attempt of the price to hit new highs. Conversely, an Exhaustion gap occurring near the end of a downtrend will signal the final attempt of the price to hit new lows.
What is actually happening behind the scenes?
Most traders will have the mentality that the trend is still ongoing. They will then rush into the trend and quickly move the asset into an overbought or oversold level.
Traders who are an old hand at trading will only be waiting to spot that reversal and then enter an opposite position to profit.
To trade these gaps successfully, enter a Buy position once you discover an exhaustion gap down and a Sell position after an exhaustion gap up. The protective stop loss would be just above the exhaustion gap up for a Sell position and just below the exhaustion gap down for a Buy position.
2. Continuation gaps or Runaway gaps.
The continuation gap signifies the continuation of a trend in the same direction without giving up or letting go.
They do not occur at the end of a trend but in the middle of a trend to reinforce that same trend.
These gaps occur on both uptrends and downtrends. A continuation or runaway gap occurring on an uptrend (Continuation gap up) signals the continuation or acceleration of such a bullish trend. On the other hand, a continuation gap occurring on a downtrend (Continuation gap down) will signify the continuation of such a bearish trend.
What causes such a gap to occur?
A release of news that reinforces the sentiment and encourages furtherance of such a trend can cause the continuation gap to occur.
Traders can then enter positions along the trend and profit big time. A Continuation gap up calls for a Buy position as a Continuation gap down calls for a Sell position.
3. Breakaway gaps.
Breakaway gaps are formed when candlesticks detach from a current pattern. They will mostly signify a breakout or a breakdown from the current pattern of price movement.
Remember what we said about the Exhaustion gaps?
They occur NEAR the end of a particular trend before it reverses. For Breakaway gaps, they occur AT the end of the current trend then a new trend begins. The asset price gaps away from the current trend and a breakout is triggered.
Breakaway gaps occur on both uptrends and downtrends.
A breakaway gap occurring at the end of an uptrend (Breakaway gap down) signifies the end of such a trend and the beginning of a downtrend. A breakaway gap occurring at the end of a downtrend (Breakaway gap up) signals that the downtrend has ended and an uptrend is just beginning.
Interestingly, breakaway gaps can also signify a continuing trend when they occur over support or resistance levels.
A Buy position is required for a Breakaway gap up while a Sell position is called for after a Breakaway gap down.
When trading Olymp Trade Forex place a protective stop just below the Breakaway gap up for a Buy position and just above the Breakaway gap down for a Sell position.
4. Common gaps.
Common may occur without the contribution of any specific factors. They occur randomly without considering any price trend or pattern.
These gaps cannot, therefore, be associated with a particular price pattern. They are just chart areas where the price gapped creating areas of trading inactivity.
Because we cannot associate them with any particular trends, common gaps will be randomly gap ups and gap downs. These will then not offer significant trading opportunities as the other types would.
Wrapping up Trading Gaps in Olymp Trade.
That is basically all that there is about the trading gaps which occur on Olymp Trade charts. To trade the gap, first identify the type of the gap.
Gap identification will help you know whether it is a tradable gap or just a common gap that offers no significant trading opportunities.
After you have identified the type you can then recall the conditions under which such a gap occurs and what the gap signifies. That way, you will enter the appropriate position making the right settings and thus profit from such a trading gap.