Gaps

There are two types of Gap – ascending gap - descending gap

An ascending gap appears when the opening price of a candlestick is higher than the closing price of the previous candlestick.

A descending gap appears when the opening price of a candlestick is lower than the closing price of the previous candlestick.

On the Forex, it is very often that a gap appears at the opening on a sunday evening, but the reasons for the gap are unique to Forex.

Why more specifically on the Forex? Because the market is still open on weekends. Only brokers(or Market Makers) stop to price on Friday night.

In the stocks market, things are slightly different. Indeed, markets are closing every night (for the CAC40),so you can see overnight gaps. They are a reflection of a big number of transaction or orders in the same side between the close of a candlestick and the opening of a new one, which lead to a bullish or bearish gap.
We can therefore say that the majority of gaps are opening gaps on the Forex, although it is possible to see them during the day (most of the time for the announcement of significant economic news)

There are several ways to trade after a Gap. You can handle the corrective movement. Indeed, most of the time, gaps are filled, that is to say after the gap, the price get back to the close price of the candlestick which is before the gap. The gap can be filled in the candlestick on which occured the gap but also on the following candlesticks. Remember that the majority of gaps are filled. The difficulty is how to set your stop loss. However, we recommend to put your stop loss above or below the candlestick on which occurred the gap.

Another technique is to wait the end of the corrective movement, then enter the market in the side of the Gap. Profits can be then important while limiting your risk. The higher the gap, the greater the likelihood that the movement will continue in the side of the gap is important after the gap has been filled. The problem is still to set your stop loss and that could be tricky. Stop loss have then to be set far from the price.

The gap itself is likely predictable, but to trade it is a more difficult especially because of the difficulty to set your stop loss.