What is a Gap in Forex Trading?

Understanding Gaps in Forex Trading

A gap is a discontinuity on a price chart where an asset opens significantly higher or lower than the previous period's close, creating an empty space with no trading activity. In forex, gaps most commonly occur over weekends when markets close Friday evening and reopen Sunday night, allowing time for news events or geopolitical developments to create price dislocations. Gaps also occur around major economic releases or unexpected news when price jumps dramatically.

Types of Gaps

Breakaway gaps occur at the start of new trends, signaling powerful shifts in market sentiment. Runaway (continuation) gaps appear mid-trend, confirming strong momentum. Exhaustion gaps mark the end of trends, occurring after extended moves as a final surge before reversal. Common gaps happen frequently in normal trading and typically fill quickly. Understanding gap types helps predict whether price will fill the gap (return to pre-gap levels) or continue in the gap direction.

Trading Gap Strategies

Common gaps typically fill within days as normal trading resumes—some traders specifically trade gap fills by taking positions opposite the gap direction. Breakaway gaps usually don't fill and should be traded in the gap direction. Exhaustion gaps may partially fill before reversing. The key is identifying gap type through context: trend strength, volume, and market conditions. Most retail traders avoid holding positions over weekends to sidestep gap risk exposure.