Why don't candlestick bodies overlap on intradays?

Discussion in 'Technical Analysis' started by Georgii, Apr 12, 2009.

  1. Georgii


    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!
  2. moarla


    must be an error...
  3. Georgii


    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.
  4. moarla


    well... :))) didnt think about guys trading unliquid instruments intraday...
    thats correct...its a gap :)))))))))))))))
  5. 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.