In the above shown chart, the theory of area gap analysis has been explained and this theory is applied on the company ‘Lupin Ltd’ during the period of May 2017. The gap is not expected to be filled in the near term.
The concept of area gap can be confirmed to have taken place only when the following conditions have been fulfilled :
1.The area gap will appear inside the trading range.
2. The area gap may be filled in the near term.
3. The volume during the Gap day is generally low.
Subject to the above conditions being fulfilled it can be determined whether the formation of area gap has happened or not. In the above analysis, it is indicated clearly that there is a gap-down, after a recent increase in prices and a sideways movement in prices. After the area gap there appears to be a dieways movement indicating stiff competition between the buyers and sellers and the chart shows that the gap has been filled after a period of time. The trader is advised to take a short position as the market appears to be bearish after the gap-down.
