0
$\begingroup$

Studying some candlestick theory, I'm repeatedly confronted with pictures where the previous (or subsequent) open/close bodies does not align with what is found before (or following after). This is often seen in descriptions of engulfing candlestick patterns. Such as this:

enter image description here

So since this is so often the case, I'm wondering if this is simply due to sloppy diagrams, an error or is actually possible? I can't actually imagine how this would be possible, unless the exchange presenting the candles has been closed (while others have been open) and then choose to ignore the data in between.

Q: What (if anything) can cause candlestick bodies, not to align?


EDIT: 2018-06-04

I just made these screenshots of the 1M on MT4 and TV. Clearly MT4 shows a bunch of weird gaps, while TV shows proper candle connections.

enter image description here

enter image description here

$\endgroup$
  • 1
    $\begingroup$ Apparently, it also depend on how your exchange handles after hours data as hinted in this question. $\endgroup$ – not2qubit Jan 15 '18 at 14:21
  • $\begingroup$ Traditionally (before night trading became common in the last 10 years) the closing time for US stocks was 1600 Eastern Time an the open was 930 the next day, so they were not the same price. $\endgroup$ – Alex C Jan 15 '18 at 15:03
1
$\begingroup$

Everytime the market closes and quotations stop, the new emerging information will necessarily be incorporated into the future opening price.

For example the daily gaps are a typical stock markets phenomenon: the quotes stop at the end of the day and the following trading-day reopening price have to absorb the overnight information.

In the Forex market instead, gaps may appear mostly in the weekly candlesticks, in fact the Forex doesn't close every day but at the end of the week, on Friday night.

However, in high volatility conditions, gaps may also occur in the lower timeframes like 1m or 5m. In your case, it may be a temporary tracking error of your MT4 or, more likely, due to inaccuracy in providing quotes of your broker.

$\endgroup$
  • $\begingroup$ Yes, I had forgotten about this question, but have since found that the rather crappy old MT4 platform does this regularly on low time-frames because of poor server synchronization, with a lot of and random lag in the tick events. $\endgroup$ – not2qubit Sep 3 '18 at 17:04
1
$\begingroup$
  1. It's clear the question is not about previous day close to next day open data and

  2. Almost every chart in publications show this same discrepancy for intraday charts.

It's likely there is data missing around, that does not get into charts when individual candles are generated. I have noticed that while charts are being updated with new data, no attempt is made to correct previous discrepancies; or data has imprecise time tags vs candle time starts and stops and it then is impossible to correct with data received after candle closure. It is useful to note and use [close previous]/[open next] price difference data.

$\endgroup$
  • $\begingroup$ Hi James! Welcome to SE QF! Indeed this question has been clarified by experience. In summary, and for this case, it depends on your brokers data feed and precision. The account I was using above was for a retail trader account, and a pretty crappy broker who is known to have bad data. In fact, it hard to back-test anything with that broker, because their data is so bad. Apart from that, in reality, it is also very common that prices change too fast even for the brokers to bother to keep up with, in which case there will be large gaps and more concerning, any SL or TP may be simply bypassed! $\endgroup$ – not2qubit Jan 12 at 20:39
  • $\begingroup$ In addition MT4 has been notorious for poor graphics/refreshing... $\endgroup$ – not2qubit Jan 12 at 20:42
0
$\begingroup$

Usually the gap between the candle bars will be due to overnight price change which replicate a new information in the markets while they were closed for trading.

$\endgroup$
  • $\begingroup$ Not quite - there is still a notion of OHLC (open/high/low/close) even when your candle bars display 30 minute intervals. $\endgroup$ – rbm Jan 18 '18 at 11:18
  • $\begingroup$ if there is a gap it means there is no overlap! gaps can happen in microstructure environment as well. for example, if today's low if lower than yesterday's high, than there is no gap! $\endgroup$ – Giladbi Jan 18 '18 at 13:59

Your Answer

By clicking “Post Your Answer”, you agree to our terms of service, privacy policy and cookie policy

Not the answer you're looking for? Browse other questions tagged or ask your own question.