Chartered Market Technician (CMT) Practice Exam

In technical analysis, a price gap signals strong momentum in a specific direction, which can indicate that the market is experiencing robust buying or selling pressure. When a price gap occurs, it represents a significant shift in supply or demand, leading to the price moving sharply without any transactions happening in between the two price points.

This can occur after major news announcements, earnings reports, or other impactful events, reflecting a consensus among traders about the future value of the asset. For instance, if there is a gap up in prices, it typically implies bullish sentiment among traders, indicating strong buying activity. Conversely, a gap down suggests bearish sentiment and strong selling pressure.

Understanding price gaps is crucial as they can provide insights into market sentiment and potential future price movements, reinforcing the concept of momentum in technical analysis. Thus, price gaps are often viewed as indicators of strong trends rather than indecision or uncertainty.