Market Gaps and Slippage Explained
What are gaps?
Market gaps provide insights into critical trading behavior defined by an empty space between two distinct trading points. A gap up indicates that mostly buyers rushed to accumulate a position in the market from one point to the next, while a gap down shows the opposite and that sellers rushed in. Gaps can quite literally be seen on the chart as an empty space.
Gaps are quite prevalent in equity markets because of the way markets “close” and “re-open” at distinct times, especially during earnings events. These moments can create large gaps or empty spaces between the previous session close and the new market open. However, gaps can happen in all markets and sometimes depend on the data or broker that you’re using – for example, at the time of this writing, there aren’t any gaps on this EURUSD chart.
How do traders trade around gaps?
Because gaps often result in prices reversing to fill the gap, this corrective action can be a crucial signal for traders. Gaps can signal market strength or potential reversals. If a gap appears before a trade entry, it might be wise to reconsider the trade. These gaps can also lead to slippage, where orders are filled at worse prices than expected because of the price action that causes the gap in the first place.
What is slippage?
Slippage is the difference between the expected and actual trade execution prices, often caused by market gaps. Slippage can be positive or negative, affecting stop and limit orders.
For instance, a sudden price jump during an extremely volatile moment can fill your order at a higher price than anticipated. While you can't avoid spread costs entirely, you can take steps to minimize slippage, such as trading during less volatile times or using limit orders. By understanding gaps and slippage, you now know one of the more detailed aspects of trading.
Did you learn something new?
Our team of researchers and market specialists will be sharing more educational content so be sure to follow our TradingView account for instant updates. Also, be sure to check out our latest ideas here.
Market gaps provide insights into critical trading behavior defined by an empty space between two distinct trading points. A gap up indicates that mostly buyers rushed to accumulate a position in the market from one point to the next, while a gap down shows the opposite and that sellers rushed in. Gaps can quite literally be seen on the chart as an empty space.
Gaps are quite prevalent in equity markets because of the way markets “close” and “re-open” at distinct times, especially during earnings events. These moments can create large gaps or empty spaces between the previous session close and the new market open. However, gaps can happen in all markets and sometimes depend on the data or broker that you’re using – for example, at the time of this writing, there aren’t any gaps on this EURUSD chart.
How do traders trade around gaps?
Because gaps often result in prices reversing to fill the gap, this corrective action can be a crucial signal for traders. Gaps can signal market strength or potential reversals. If a gap appears before a trade entry, it might be wise to reconsider the trade. These gaps can also lead to slippage, where orders are filled at worse prices than expected because of the price action that causes the gap in the first place.
What is slippage?
Slippage is the difference between the expected and actual trade execution prices, often caused by market gaps. Slippage can be positive or negative, affecting stop and limit orders.
For instance, a sudden price jump during an extremely volatile moment can fill your order at a higher price than anticipated. While you can't avoid spread costs entirely, you can take steps to minimize slippage, such as trading during less volatile times or using limit orders. By understanding gaps and slippage, you now know one of the more detailed aspects of trading.
Did you learn something new?
Our team of researchers and market specialists will be sharing more educational content so be sure to follow our TradingView account for instant updates. Also, be sure to check out our latest ideas here.
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