The talk of the crypto customs in the by few months has been the gaps on the Bitcoin (BTC) CME (Chicago Mercantile Substitution) futures chart. Bitcoin trades 24/7 on major exchanges but does not trade on weekends on the CME. This ofttimes creates a gap, or empty infinite on the chart when trading resumes on the CME.

There is a famous saying in Physics: "nature abhors a vacuum." This is a postulate attributed to Aristotle, who articulated a belief, later criticized by the atomism of Epicurus and Lucretius, that nature contains no vacuums because the denser surrounding material continuum would immediately make full the rarity of an incipient void. People have expanded the concept to use to many facets of life — including trading and technical assay.

A gap is an unfilled space or interval on a chart, caused by precipitous movement in either direction. In an upward trend, a gap is produced when the highest price of i candle is lower than the lowest toll of the following candle. Conversely, in a downwardly trend, a gap occurs when the lowest toll of any candle is higher than the highest cost of the adjacent candle.

Types of gaps

In that location are four types of gaps and they are traded in different manners. It is essential that investors be able to differentiate between them.

  • Breakaway gap — This gap is seen when cost makes a strong directional motility from an area of consolidation. It is particularly powerful for traders when combined with clear patterns on the chart like trading ranges and ascending and descending triangles. A breakaway gap with meaning volume after the gap is a sign of a strong trend and is unlikely to exist filled. A depression volume move creating the space is more probable to see price returning to the area. Bottom line — breakaway gaps are less likely than other types to be filled.
  • Mutual gap — These are also known equally surface area gaps, pattern gaps, and temporary gaps. These are the gaps that traders see nearly oft in trading ranges and during sideways motion. They are oft filled but offer very little information on what price is likely to do after this occurs. They rarely exist within a notable price design on the chart — they are simply areas where in that location was minimal trading that is likely to be filled.
  • Exhaustion gap — This type of gap is viewed every bit a signal that a trend is ending and that a new design or trend is likely. They occur most the finish of a price pattern and bespeak a concluding attempt to hit new highs or lows. Exhaustion gaps mostly occur in an area of rapid accelerate or decline, oft on a big move straight up or down. They are normally preceded past a heavy volume spike and oftentimes foreshadow a "blow-off top" in an uptrend. These are the most likely gaps to exist filled.
  • Measuring Gap — also known as a runaway gap or continuation gap these gaps occur in the centre of a price pattern and indicate a rush of buyers or sellers who share a common conventionalities in the underlying asset's future direction. Measuring gaps do non occur during consolidation or in an surface area of congestion. They occur during a rapid price incline or decline. Runaway gaps are not usually filled for a considerable period of time, if ever.

A common error when trading gaps is confusing exhaustion and measuring gaps. This tin cause an investor to position himself incorrectly and to miss significant gains during the last half of a major uptrend.

Keeping an eye on the volume can help to detect the inkling for discerning between measuring gap and exhaustion gap. Normally, noticeable heavy volume precedes the arrival of an exhaustion gap.

Exhaustion and measuring gaps predict moves in opposite directions, then it is essential to understand the difference. Too, it is of import to note that once a gap starts to fill, it rarely stops — because there are no firsthand areas of support and resistance within the gap.

The bottom line? Measuring gaps and breakaway gaps are far less likely to be filled than exhaustion and common gaps. Agreement the difference betwixt the types of gaps can help traders and investors make money in every market.

The views and opinions expressed here are solely those of the (@scottmelker) and do not necessarily reverberate the views of Cointelegraph. Every investment and trading move involves adventure. Y'all should conduct your own research when making a decision.