Hi all, Please forgive the newbie question... I've been learning about candles. When I look at some intraday charts, I wonder why sometimes the bodies of the successive candles don't overlap (please see attached illustration). My assumption is that in a fairly liquid security, prices should pretty much change in sequence, like 10.00, 10.05, 10.10, 10.07, 10.02. The way some candlesticks look it seems like there is a gap in price. For example, candle one opens at 10.00, has a range from 9.75 to 10.20, and closes at 10.15. Then the next candle, logically, should open at 10.15, or at least within a few very small points of it, no? Yet I often see that sometimes the next candle may open at like 9.50, or 10.50, in other words there seems like a very rapid jump in price. I gather the candlesticks are not omitting any information if this is an intraday chart (i.e. 5 minute chart). Thank you in advance for your explanations!
Okay, so let's pretend we're in the pit... Candle opens: 10.00 Next sale: 9.90 Next sale: 10.00 Next sale: 10.05 Next sale: 10.10 Next sale: 10.20 Last sale, candle closes: 10.10 Shadow is from 9.90 to 10.20 Very next sale, candle opens at: 9.10 That means from the last candle close (10.10) to the next candle open (9.10) absolutely no trading activity took place. There was a 1.00 difference between the close of the first candle and the open of the next one. That means the security is probably not very liquid, if we're talking an intra-day candle - or there was a significant instantaneous change in supply and demand. Otherwise the candle close and the next candle open would be very close to each other. This difference is called a gap, right? Thank you for any advice, as always.
well... )) didnt think about guys trading unliquid instruments intraday... thats correct...its a gap ))))))))))))))
What is your definition of liquid? Will you consider something a liquid instrument that trades Mil+ in 5 minute time-frame (check average volume in the attached). There has to be another explanation - I was also wondering about the same but could never find the correct answer.