CMC Markets - Gaps

1. CMC Markets – Gaps

Introduction

Gaps in price charts represent discontinuities where the price of an asset opens significantly higher or lower than its previous close. They are a common phenomenon in financial markets, including those traded on the CMC Markets platform. Understanding gaps is crucial for binary options traders, as they can signal potential trading opportunities and provide insights into market sentiment. This article will delve into the intricacies of gaps within the CMC Markets environment, covering their types, causes, how to identify them, and how to incorporate them into your trading strategies. We will specifically focus on how these gaps affect trading on CMC Markets, keeping in mind the platform’s features and instruments.

What are Gaps?

A gap occurs when there is a noticeable difference between the closing price on one period (e.g., a day, hour, or minute) and the opening price on the next. Visually, on a price chart, this appears as a 'space' or 'break' in the price action. Gaps are not filled immediately; the price needs to move to 'close' the gap. The existence of a gap signifies a strong directional move, often fueled by new information or significant market events.

On CMC Markets, gaps are visible across a wide range of assets, including forex, indices, commodities, and stocks. The platform’s charting tools allow traders to easily identify these gaps and analyze their potential implications.

Types of Gaps

Gaps are categorized based on their characteristics and the context in which they occur. Understanding these types is vital for accurate interpretation.

• **Breakaway Gaps:** These gaps signal the start of a new trend. They occur after a period of consolidation and indicate a strong surge in buying or selling pressure. Breakaway gaps are often accompanied by high trading volume. They 'break away' from a previously established trading range.
• **Runaway (Continuation) Gaps:** These gaps occur *during* an established trend and signify a continuation of that trend. They indicate strong momentum and a willingness of traders to continue pushing the price in the same direction. They often appear after a period of consolidation *within* the trend.
• **Exhaustion Gaps:** These gaps occur towards the end of a trend and suggest that the momentum is waning. They often appear after a strong price move and can be a sign of a potential reversal. They are characterized by increasing volume initially, followed by a decline.
• **Common Gaps:** These are short-lived gaps that occur during relatively quiet trading periods. They are often filled quickly and don't carry significant trading implications. They are generally caused by minor news or insignificant market events.

Causes of Gaps

Several factors can cause gaps in price charts. These include:

• **News Events:** Major economic announcements, political events, or company-specific news can trigger significant price movements that result in gaps. For example, a surprising interest rate decision by a central bank or a positive earnings report from a major company.
• **Overnight Events:** Since markets are often closed for a period of time (e.g., overnight or over weekends), significant events can occur during those times that cause the price to gap open on the next trading session.
• **Earnings Reports:** Publicly traded companies release earnings reports periodically. These reports can significantly impact the stock price, often leading to gaps.
• **Geopolitical Events:** Unexpected geopolitical events, such as wars, natural disasters, or political instability, can create uncertainty and volatility, resulting in gaps.
• **Trading Volume Surges:** A sudden and substantial increase in trading volume can drive the price sharply in one direction, creating a gap.
• **Order Imbalances:** A large imbalance between buy and sell orders can cause the price to gap up or down to find a new equilibrium.

Identifying Gaps on CMC Markets

CMC Markets provides robust charting tools that allow traders to easily identify gaps.

• **Candlestick Charts:** Gaps are most clearly visible on candlestick charts, where the space between the previous close and the current open is readily apparent.
• **Heikin-Ashi Charts:** While not directly showing gaps, Heikin-Ashi charts can highlight trend strength and potential reversals that often accompany gap formations.
• **Charting Tools:** Utilize CMC Markets' charting tools to zoom in on specific timeframes and analyze price action for gaps. Look for periods where the opening price is significantly different from the previous closing price.
• **Alerts:** Set up price alerts on CMC Markets to be notified when significant price movements occur, potentially indicating a gap formation.

Gaps and Binary Options Trading on CMC Markets

Gaps have specific implications for binary options trading on the CMC Markets platform.

• **Gap and Close Gaps:** A common strategy is to trade based on the expectation that a gap will be filled. This involves predicting whether the price will move back to close the gap within a specific timeframe. However, strong trends can prevent gaps from being filled quickly, or at all.
• **Breakaway Gap Confirmation:** A breakaway gap can be a signal to enter a binary options trade in the direction of the breakout. This strategy relies on the assumption that the gap indicates the start of a new, sustained trend. Confirm the gap with increased volume.
• **Exhaustion Gap Reversals:** An exhaustion gap can signal a potential trend reversal. Traders might consider entering a binary options trade in the opposite direction of the previous trend. Look for confirmation signals like candlestick patterns (e.g., doji, engulfing patterns).
• **Avoiding Gaps:** Be cautious when trading immediately after a gap. The initial price action can be volatile and unpredictable. Waiting for the market to stabilize before entering a trade is often advisable.
• **Timeframe Considerations:** The significance of a gap depends on the timeframe being analyzed. Gaps on longer timeframes (e.g., daily or weekly) are generally more significant than gaps on shorter timeframes (e.g., hourly or 5-minute).

Trading Strategies Involving Gaps on CMC Markets

Here are some specific trading strategies you can employ on CMC Markets, utilizing gap analysis:

• **Gap Fill Strategy:** Identify a gap and predict whether it will be filled within a specific timeframe. Purchase a "Call" option if you believe the price will rise to fill the gap, or a "Put" option if you believe the price will fall.
• **Breakaway Gap Momentum Strategy:** When a breakaway gap occurs, coupled with high volume, purchase a "Call" option if the gap is bullish (price gaps upwards) or a "Put" option if the gap is bearish (price gaps downwards).
• **Exhaustion Gap Reversal Strategy:** After an exhaustion gap, look for confirmation signals (e.g., candlestick patterns, technical indicators) before purchasing a "Put" option if the gap was bullish, or a "Call" option if the gap was bearish.
• **Gap and Retest Strategy:** After a gap, the price often retraces back towards the gap level before continuing in the original direction. This 'retest' of the gap can be a good entry point for a binary options trade.

Risk Management and Gaps

Trading gaps requires careful risk management.

• **Stop-Loss Orders:** While binary options don’t directly use stop-loss orders, consider the potential risk associated with each trade based on the gap size and volatility.
• **Position Sizing:** Adjust your position size based on the perceived risk level. Don't risk more than a small percentage of your trading capital on any single trade.
• **Timeframe Alignment:** Ensure that your chosen timeframe for binary options trading aligns with the timeframe of the gap you are analyzing.
• **Confirmation Signals:** Don’t rely solely on gaps for trading decisions. Always look for confirmation signals from other technical analysis tools and indicators.
• **Volatility:** Gaps often occur during periods of high volatility. Be prepared for rapid price movements and adjust your trading strategy accordingly.

Tools and Indicators to Complement Gap Analysis on CMC Markets

Several tools and indicators can enhance your gap analysis on the CMC Markets platform:

• **Volume Analysis:** High volume accompanying a gap confirms its strength.
• **Moving Averages:** Moving averages can help identify the overall trend and potential support/resistance levels around the gap.
• **Relative Strength Index (RSI):** RSI can indicate overbought or oversold conditions, potentially signaling a reversal after an exhaustion gap.
• **MACD (Moving Average Convergence Divergence):** MACD can confirm trend direction and momentum.
• **Fibonacci Retracement:** Fibonacci levels can identify potential retracement levels after a gap.
• **Bollinger Bands:** Bollinger Bands can indicate volatility and potential breakout points.
• **Support and Resistance Levels:** Identify key support and resistance levels that may influence the price action around the gap.

Examples of Gaps on CMC Markets

Let’s consider a hypothetical example:

Imagine the USD/JPY currency pair is trading around 140.00. Overnight, a significant economic announcement is made, causing the price to gap up to 141.50.

• **Breakaway Gap Scenario:** If this gap is accompanied by high volume and confirms a broader upward trend, a trader could purchase a "Call" option, expecting the price to continue rising.
• **Exhaustion Gap Scenario:** If the gap is followed by a period of consolidation and bearish candlestick patterns, a trader could purchase a "Put" option, anticipating a potential reversal.

Conclusion

Gaps are powerful signals in financial markets, and understanding them is essential for successful trading on the CMC Markets platform. By learning to identify the different types of gaps, understanding their causes, and incorporating them into your trading strategies, you can improve your ability to profit from market movements. Always remember to practice sound risk management and utilize confirmation signals from other technical analysis tools to enhance your trading decisions. Remember to understand your risk tolerance and trade responsibly.

Gap Characteristics Summary

Gap Type	Description	Trading Implication	Volume		Breakaway Gap	Signals the start of a new trend.	Potential long/short entry in the direction of the break.	High		Runaway Gap	Continues an existing trend.	Confirmation of the current trend; potential continuation trade.	Moderate to High		Exhaustion Gap	Signals the end of a trend.	Potential reversal trade; look for confirmation.	Initially High, then Declines		Common Gap	Occurs during quiet periods; often filled quickly.	Generally not significant for trading.	Low

Technical Analysis Trading Strategies Candlestick Patterns Trading Volume Forex Trading Index Trading Commodity Trading Stock Trading Risk Management CMC Markets Platform Binary Options Strategy Heikin-Ashi Moving Averages Relative Strength Index (RSI) MACD Fibonacci Retracement

Start Trading Now

Register with IQ Option (Minimum deposit $10) Open an account with Pocket Option (Minimum deposit $5)

Join Our Community

Subscribe to our Telegram channel @strategybin to get: ✓ Daily trading signals ✓ Exclusive strategy analysis ✓ Market trend alerts ✓ Educational materials for beginners