A hidden gap is a type of gap formation in financial markets that is not easily visible on standard price charts.
Hidden gaps, also known as "invisible" or "inter-session" gaps, occur when there is a price difference between the closing price of one trading session and the opening price of the subsequent session. According to the reference, hidden gaps meet the definition of gaps in the sense that the closing price of one session gaps to the opening price of the next session.
However, unlike typical visible gaps (like common, breakaway, or exhaustion gaps), hidden gaps are obscured. This is because the trading range of the day where the gap occurs overlaps with the trading range of the previous day.
Understanding Why They Are "Hidden"
When examining a price chart, a visible gap appears as an empty space between the high of the previous bar (or candle) and the low of the current bar, or vice versa. This empty space signifies that no trades occurred at prices within that range.
In contrast, with a hidden gap:
- The close of day 1 is different from the open of day 2 (this is the "gap").
- But, the price movement during day 2 crosses back into the price range traded during day 1.
- The high or low of day 2 overlaps with the high or low of day 1.
This overlap makes the gap between the close and open invisible on the chart because the day's trading range covers the area where the gap occurred.
Key Characteristics
Let's break down the key characteristics of a hidden gap:
- Definition: Closing price of previous session ≠ Opening price of current session.
- Visibility: Not visible as an empty space on standard charts.
- Cause of Hiding: Overlap in the trading ranges between the two sessions.
| Feature | Visible Gap | Hidden Gap |
|---|---|---|
| Close vs. Open | Close ≠ Open | Close ≠ Open |
| Chart Appearance | Empty space between bars/candles | No empty space; range overlap occurs |
| Visibility | Obvious | Requires closer examination/data |
While not immediately apparent, understanding hidden gaps can still be relevant for traders and analysts who look at session data or use specific indicators that account for open/close discrepancies regardless of the day's range overlap.
