The way I think of gaps is that the open of the current bar must be outside the range of the previous bar to qualify as a gap. Do traders simply look at the last close? For example, ES range on 1st May was 1391.25 - 1411.75 (RTH), close was 1400.5. Subsequently it opened lower at 1394 (RTH) on 2nd May, which happens to be lower than the close on 1st May, but still within the range of the previous bar. Would this be considered a gap? Note that I'm referring to the ES on the daily chart only, I'm not talking about the lower time frames. Would appreciate inputs on this.
I look at gaps from the standpoint of the close/open correlation. If the open of a bar is lower than the close of the previous bar, a gap is formed, and vice versa. However, I use shorter time frames in my trading, therefore increasing the likelihood of gap formation. Gap plays can be profitable, and I believe there are a number of methods out there that focus on trading gaps. I have used them on occasion to look for setups, but have yet to find a consistent approach to trading them. I just know that the market always seeks to fill gaps, whether it be in the short term, or over a longer period.
The way I use it, the term "gap" refers to the visual appearance of space between today's open and yesterday's close on a (RTH only) chart of 2 consecutive days. I know you like to see a visual "gap" between today's H and yesterday's L (or vice-versa) ... to each his own.
========= Good question; yes thats a gap on daily chart [also called a window] Easy to remember; last price @ end of the day=close. Different open, regular hours,[up or down]is a gap. Range isnt really related to gaps.
Range is related to gaps. I think many people are confused between partial (half) gaps and a normal gap, or they have their own ideas on what a gap is (which is normal since TA is not a science). You only get a gap when the open on the next day is outside the previous day's range, its only a half gap if the open falls within the previous day's range. http://stockcharts.com/school/doku.php?id=chart_school:trading_strategies:gap_trading_strategi They are 2 very different things.