Understanding the price gaps in the CFD market
Being an investor means you always have to be eager to learn new strategies and techniques of the CFD market. Knowing about this news is very important for you to survive in this ever-changing market. If one doesn’t have a good concept of the market and how it works, he might face a severe loss. That’s why you should always be willing to be a consistent learner as a trader.
Now, price gaps are a pretty simple mechanism in the currency exchange market, and this is the condition in which the closing price of the first candle doesn’t match the opening price of the second candle. Now, price gaps are frequently observed in the Forex industry, and experts take prudent decisions by analyzing the gaps. Precise observation of the price gaps has the potential to provide the investors with great money-making opportunities.
Therefore, it is needless to say that learning about this topic will be profiting for those who are willing to level up their trading game and update their trading portfolio. So, without further ado, let’s get into learning about this critical topic.
The basics of the price gap
Every Forex trader experiences gaps. This is not very new to those who have been consistent in putting their cash in this line. To understand its basics, we first have to take a look at the candlestick chart.
What is a candlestick chart?
A Candlestick chart is an old price chart where information is presented in the form of candles. Here, each candle is used to denote the opening and closing price of a currency pair. Another advantage that this price chart provides is that it also shows the highest and lowest price ranges in a specific time. Note that you need to analyze the candlestick chart by using a premium broker like Saxo. Once you start exploring the accurate price feed, trading commodities will become easier.
The popularity of the chart
Do you know why this chart is very popular among investors in the Forex market? It is because of its ease of use and convenience. When a currency pair’s opening price is less than the closing price, we can say that the demand for that currency has increased. Then that candle is called a bullish candle. On the other hand, when the closing price is lower than the opening price, we term it as a bearish candle as the price has fallen. Now, each of the bullish and bearish candles is colored in two different ways so that you can easily distinguish them from the other.
So, why is it important to know about the price gaps?
These price gaps, in reality, help in understanding the market sentiments easily. When the gap between the two price ranges is large, we can say that the demand has increased at a huge rate. On the other hand, if the gap is not far apart, we can take it as an indication that the trend of that commodity is going sideways.
Therefore, we can conclude that price gaps are an important indicator in understanding the trends. When the gap is big, we can say that there is a persistent uptrend or downtrend. Investors need to observe the trend to find the most suitable places to execute trades.
If the price gaps are too high, then you can understand whether to buy or sell stocks according to the existing trends. Some traders think the market will always cover the gap. But in a real life scenario, the gaps can act as a strong support or resistance zone unless it is covered within a few candles.
Now, being a trader in the Forex market means you need to be consistently learning and gaining a better understanding of the market. There is no end to such learning and if you are patient enough then you can use such tools effectively in your trades.
Story by Chris Johnson