The exhaustion gap is used to gauge the strength of either the buyers or the suppliers by following a Gap Analysis. In this analysis the gap reflects termination of an upward or downward movement in the prices of the stock. The following factors are taken into consideration to confirm the formation of an Exhaustion Gap :
1. The Gap appears after a trending zone and it seems to be a Runaway Gap, but if it gets filled on the same day then it can be considered to be an Exhaustion Gap.
2. The close should be at it’s day’s low during the Runaway Gap.
3. The volume should be very high during the day to terminate the existing trend.
It can be observed in the above shown chart that the concept of Exhaustion Gap can be applied on the company ‘Power Finance Corporation Ltd’ during the period of May 2017 (30/05/2017). There seems to be a downward movement in the price of the stock until there finally is an upward movement on 30/05/2017, which starts on a lower note conceding a gap only to later fill the gap after moving upwards. Therefore it can be said that in concurrence with the above principles that it forms an Exhaustion Gap.
good explanation