Candle Stick Charts

#1

@filip
Hello Filip,
How come that in a candle stick chart the bodies of the candles in the do not align?
I mean does the opening of a candle coincide with the closing of the candle before? and does the closing of a candle coincide with the opening of the candle next?

Many thanks :sunny:

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#2

No it doesn’t have to. The market doesn’t have to open the next candle at the closing price. This phenomenon is known as a Gap, when there is a difference between the closing price and the opening price of the next candle.

You can read more about that here and how you can trade on it: https://www.investopedia.com/terms/g/gap.asp

#3

They will not necessarily be aligned as opening prices can vary from previous day closing prices. You see this often in pre-market activity on stock markets like the NASDAQ. Opening bid/ask is usually different from previous day close :slight_smile:

As @filip mentioned, this is known as a Gap. What’s important to note here is that there is an investor psychology where, if there is a large gap, often at some point in the future the stock will close that gap.

What this means is that when there is a big spike up or hit down, the market will at some point return to that price and fill the gap.

Sounds crazy, but historically this is a tendency that actually happens in the market.

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