Futures For You by Carley Garner
WHAT DO GAP TRADERS WANT?
What exactly are gap traders looking for?
For those unfamiliar with gap trading, a price gap occurs when there is a significant difference in the closing price of the previous session relative to the opening price of the following session. A gap is described by its direction; for instance, you might hear traders refer to a gap with an increase in price as a “gap up” or a “gap higher.” A sharp decrease in price from the previous session close is known as a “gap down” or a “gap lower.”
Price gaps used to be common in commodities due to abbreviated trading sessions relative to equities, and the potential volatility exposure overnight and on weekends. Although this type of price action still occurs in the futures markets today, it is much less common than it once was.
The scarcity of large price gaps can be attributed to the fact that most futures contracts trade virtually 24 hours per day during the week these days. Accordingly, in most cases, there simply isn’t enough time between trading sessions to justify a large price move.