UK Accounting Glossary
A Common Gap is a gap in stock price brought about by normal market forces and are considered to be very common. They are represented graphically by a jump or drop from the previous close to the open price on the (daily, weekly, monthly) stock chart. The trading range maintains the gap throughout the trading day.
Common gaps are often used in conjunction with other technical analysis indicators and/or chart studies. A breakaway gap is used to establish a strong bullish or bearish trend. An exhaustion gap marks the end of a run. Short term traders often trade against the gap, hoping to fill the gap.
Gaps are also used in several candlestick patterns. Upside Gap Two Crows is an example.
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This glossary post was last updated: 23rd March 2020.