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The charts I use in this column are inevitably either daily or weekly and perhaps on occasion monthly in time interval. They are composed of price bars, each depicting the activity of a discrete time period, and show the range of movement in that period as a vertical line. On each line there will be two small horizontal notches: on the left, the price at which the time period started and on the right, the last price for that period.

Inevitably, because most markets are not continually open and traded (even the forex market has periods when little if any real activity happens), there is the possibility for the market opening some way from where it previously closed. For traders this can be worrisome, as these opening jumps can be both the source of good profits and the cause of significant losses on positions run over from the preceding trading session. Often what appears to be a gap on the short-term intra-day price chart is quickly closed as activity takes the price back into the range of the previous session. However, on occasion this does not happen, and the gap remains on the chart to be evidenced on the daily or even weekly chart.

Something quite special can sometimes cause such gaps, and analysing them in the context of recent price behaviour can point to future moves. Quite often, if the chart shows a possible breakout about to happen, perhaps from a top or bottom formation, then the move, when it comes, can jump through the perceived key level by way of a gap. Such an event is unsurprisingly referred to as a breakout gap and adds significant weight to the analysis. At other times and following a trend, the market can make a gap that, it transpires, will remain unclosed and be seen to have marked a mid-point in that trend. These can be useful in providing a measuring point for the eventual extent of the move.

Lastly, toward the end of a move, we can expect to see an exhaustion gap. These are typified by their being quickly closed by subsequent price movement and, in so doing, the market warns that a move is losing momentum and coming to a close. Gaps can remain on a chart for long periods of time, and while they continue to be unclosed by subsequent price action their influence persists.