30 Day assignment – Day 8 Module – Gap Analysis

Gaps are areas on a chart where the price of a stock moves sharply up or down, with little or no trading in between. As a result, the asset’s chart shows a gap in the normal price pattern. Analysis of the gap is called GAP analysis.
It indicates the strength of the trend in the market. It also indicates at what stage of the trend we are in i.e early stage, termination stage, breakout stage, etc.
It helps to confirm the analysis done with price patterns and candlesticks on the directional movement.
Right interpretation of the Gap can indicate the right entry point in a trade.
Spot the Gaps using Candlesticks. Qualify the recent price action as Trending or Non-trending (sideways movement).
4 types of Gap:
1. Area gap
2. Runaway gap
3. Breakout gap
4. Exhaustion gap
Gaps occur because of underlying fundamental or technical factors.