A Technical Approach To Trend Analysis: Practical Trade Timing for Enhanced Profits

Gap Up and Gap Down

Gaps occur to the upside as well as to the downside. As a general rule, a gap up tends to occur during an uptrend and confirms that trend, and a gap down confirms continuation of a downtrend. However, these observations are not always true and have to be confirmed like all gaps, with independent signals.

Key Point

Gaps tend to occur in the same direction as price movement. This is a common pattern, but it does not always occur. Opposite-moving gaps could signal reversal.

In candlestick analysis, a gap up is called a rising window, and a gap down is called a falling window. The two sessions (before and after the gap) can be of either color, but the overall assumption remains that gap up is bullish and gap down is bearish. ...