Price Gaps

Friday, December 21, 2012
Price gaps are areas on a chart where no trading activity has taken place between the close of a session and the open of the following session.
The significance of price gaps varies depending on their location on a price chart.

Breakaway Gap
A Breakaway Gap appears when price breaks out of a congestion area or trading range. Volume is higher than usual. This type of gap marks the start of a new trend and is often event triggered (news, earnings).  The gap is usually not filled.

Continuation Gap
A Continuation Gap is also called a Runaway or Measuring Gap. It appears in the middle of the trend. This type of gap confirms the strenght of the ongoing trend.  Prices continue making new highs or lows without filling the gap. Volume should be average. The gap can be considered a good entry point.

Price Gaps

Exhaustion Gap
An Exhaustion Gap signals the end of an extended market move. It follows a rapid advance or decline. Associated with heavy volume and usually followed by a reversal.  The gap is expected to be filled fairly quickly.

Common Gap
Also called a Trading Gap or Area Gap. The Common Gap is the most frequently seen gap and usually appears in a trading range. Associated with low volume, the gap is usually small in size and is expected to be filled fairly quickly.