If the opening price of a stock is higher than the previous close then that is called as a gap. Gap usually help to find out the strength of the market rather buy and sell signal.Gap is based on appearance location and characteristics it is defined as four types. 1. Area Gap, 2. Breakout gap, 3. Runaway gap,4. exhaustion Gap. Area gap appears in the non trending area or sideways trending area. It is filled very near term soon and volume should be as low as possible. It is happening because of some news about stock overnight. Breaks out gaps appear when price gives break out from non trending area. That should not be filled near term. Volume should be high by that time is expected. This is because of buyers is more aggressive than the sellers. Post breakout gap the run away scenario may take place because of sellers from the break out gap may appear here as aggressive buyers so the price may be higher than the previous close. Days close should be high in that day. Volume should be distributive on that day. When runaway gap is filled on the same day means it will denote as a exhaustion gap. Volume should be high on that day and days close is low of that day. Exhaustion gap appears mainly because buyers become an aggressive sellers now for profit booking.
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