A price gap is created when the market moves overnight and opens at a different level from where it closed the previous day. The gap refers to the cash market, so it is the difference in price between the cash close (17:30 CET time) and the cash open (9:00 CET).
Example: gap up 13th April
– the market moves higher overnight so it ‘gaps up’ at the open:
Example: gap down 19th March
– the market moves lower overnight so ‘gaps down’ at the open:
Ex-gaps use the same principle but use the high or low as the reference point. For example:
The market closes at 11300 and the high and the low of the day were 11350 and 11250 respectively.
- If the market opens the next day at 11375, it creates a cash gap up of 75pts (Today’s open – Y’day close) and an ex-gap up of 25pts (Today’s open – Y’day high)
- If the market opens the next day at 11220, it creates a cash gap down of 80pts (11300-11220) and an ex-gap down of 30pts (11250-11220)
How to trade them
- Use unfilled gaps as profit targets
- Fade gap and ex-gap and fill
apsstay unfilled until they are filled during cash hours and until that time they create reliable ‘magnets’ in the market to trade. G
Cash chart showing unfilled gaps
The same principle applies