Bitcoin - What is GAP?You may have noticed that I often use the word GAP, after many questions about what it is. I thought I'd tell you.
What is GAP?
If translated verbatim, a GAP (GAP) is a gap, the difference between quotes on Friday and the opening of the market on Monday. And if the difference between the closing price on Friday and the opening on Monday is significant, then a jump will occur. That is, the price is noticeably higher or lower than the price that was on Friday and it is clearly visible on the chart, as in the example below:
We can see that the closing price on Friday was about $9295 and the opening price on Monday was $9705. That is about 410 points higher than the closing price on Friday:
And this gap, which is formed between the market close price on Friday and the opening price on Monday, is called the GAP. Naturally, a GAP is not always formed. On average, it can be seen once a month and is more common in Forex and stock markets. Sometimes more often, sometimes less often, but the fact is that GAPs happen and you can make money on them.
Why do GAPs happen?
GAPs occur because during the time when the market is not active, namely over the weekend, a certain number of sell and buy orders are accumulated. And when the market opens on the night from Sunday to Monday, these very orders collapse and create a jump, as we saw on the chart earlier.
Of course, this does not always happen, but only when there is a significant advantage in Buy or Sell orders accumulated over the weekend. Market makers see a huge number of Buy or Sell orders and, accordingly, we see the price visually above or below the market close values on Friday.
As for the crypt currency: the futures market does not work over the weekend, while the crypt currency exchanges work 24/7, the price during the weekend can be called.
It is worth noting one important point. As a rule, GAPs tend to close.
Let us consider an example:
Why do GAPs tend to close?
The fact is that when the market opens significantly higher or significantly lower than Friday's price, then many orders are activated, many pending orders to buy or sell. Naturally, the stops of these orders are located near the Friday closing price. And thus market makers try to knock out the stops of those guys whose orders have worked at the opening of the market and take their money for themselves.
After the gap was closed, the market can go absolutely in any direction. There are no special regularities here. In general, the gap tends to close, but sometimes it happens that there is a jump in opening prices on Monday, and it continues. It happens only when there is a strong trend movement or some fundamental factors come into play. For example, something could have happened in the economy over the weekend. That is, there is a tendency to close, but not always. You should keep that in mind!
The probability of closing the gap is ≈ 70%
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