For novice traders gaps are not easy to digest due to sheer psychological reasons but seasoned traders know it's importance and how to trade it. An active trader should know the basic Gap trading strategies as they are simple to apply and produce positive outcomes most of the time.
If you have been wondering what is meant by a gap then here is the simple definition. A gap is a change in price levels between the close and open of two consecutive days. In trading terminologies there are in general four types of gaps - Full Gap Up, Full Gap Down, Partial Gap Up, Partial Gap Down.
A Full Gap Up occurs when the opening price is greater than yesterday's high price while A Full Gap Down occurs when the opening price is less than yesterday's low. A Partial Gap Up occurs when today's opening price is higher than yesterday's close, but not higher than yesterday's high while a Partial Gap Down occurs when the opening price is below yesterday's close, but not below yesterday's low.
