Gap
Definition
A gap is a price area on a chart where no trading occurs, creating a visible space between two consecutive candles. Gaps typically occur at market open (especially after weekends in forex), during major news events, or due to low liquidity. Common gap types include breakaway gaps (start of a new trend), continuation gaps, and exhaustion gaps (near the end of a trend). Many traders believe gaps tend to be filled.
Related Terms
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More in: Market Structure
Bull Market
A bull market is a market condition characterized by rising prices, optimism, and strong buying pressure. It is typically defined as a sustained price increase of 20% or more from a recent low. Bull markets are driven by strong economic fundamentals, positive sentiment, and increasing investor confidence. Traders in bull markets primarily look for buying opportunities on pullbacks.
Bear Market
A bear market is a market condition characterized by falling prices, pessimism, and strong selling pressure. It is typically defined as a sustained price decline of 20% or more from a recent high. Bear markets are often associated with economic downturns, negative sentiment, and risk aversion. Traders in bear markets look for shorting opportunities on rallies.
Consolidation
Consolidation is a period of sideways price movement where the market trades within a defined range without establishing a clear trend. It occurs when buying and selling pressures are balanced. Consolidation often precedes a breakout and is characterized by decreasing volatility. Traders either trade the range boundaries or wait for a breakout to establish new positions.
Range
A range is a price area bounded by a clearly defined support level (floor) and resistance level (ceiling) where the price oscillates back and forth. Range-bound markets lack a clear trend and are ideal for oscillator-based strategies. Traders buy near support and sell near resistance, or wait for a breakout from the range to signal a new trend.
Breakout
A breakout occurs when the price moves decisively above a resistance level or below a support level, often accompanied by increased volume. Breakouts signal the start of a new trend or the continuation of an existing one. False breakouts (fakeouts) occur when the price temporarily breaks a level but quickly reverses. Confirmation through volume and candle close helps filter false signals.
Pullback
A pullback is a temporary price movement against the prevailing trend, offering potential entry opportunities in the trend direction. In an uptrend, a pullback is a brief decline before the price resumes its upward movement. Pullbacks differ from reversals in that they are shorter-lived and do not change the overall trend. Fibonacci retracement levels are commonly used to identify pullback targets.
Retracement
A retracement is a temporary reversal in price within a larger trend, where the price moves back toward a previous level before continuing in the original direction. Retracements are measured using Fibonacci levels (23.6%, 38.2%, 50%, 61.8%). They are distinguished from reversals by their shorter duration and the expectation that the primary trend will resume.
Reversal
A reversal is a change in the overall direction of a price trend, where an uptrend turns into a downtrend or vice versa. Reversals are identified through chart patterns (head and shoulders, double tops), indicator signals (divergence), and candlestick patterns. Distinguishing between a genuine reversal and a temporary pullback is one of the most challenging aspects of technical analysis.
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