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The GAP is formed when there is a large-enough difference in the opening price with reference to the closing price of the previous day
Area gap – will appear inside the trading range(Non trending area) . It may be filled in near term. If gap not filled which indicates the weakness of counter party. The volume during the Gap day is generally low.
Breakout gap – will appear only when price give breakout from its trading range. Area Gap may not be filled in near term. The volume during the gap day should be high.
Runaway gap – Post breakout, the runaway scenario take place, its indicated the sellers buy back the shares. This gap appear inside the trending zone, it may not be filled in near term. The close should be at its day’s high during Runaway gap. The volume is distributed evenly during the day.
Exhaustion gap – The gap appear after the trending zone seems to be a Runaway gap but if it get filled on a same Day then it can be considered to be Exhaustion gap. The close should be at day’s low during runaway gap. The volume should be very high during the day to terminate the existing trend.
A gap is an area discontinuity in a security’s chart where its price either rises or falls from the previous day’s close with no trading occurring in between. There are four different types of gaps – Common Gaps, Breakaway Gaps, Runaway Gaps, and Exhaustion Gaps – each with its own signal to traders.
Area gap or common gap- Common gaps generally get filled relatively quickly (usually within a couple of days) when compared to other types of gaps. Common gaps are also known as “area gaps” or “trading gaps” and tend to be accompanied by normal average trading volume.
Breakout gap- A breakaway gap occurs when the price gaps above a support or resistance area, like those established during a trading range. When the price breaks out of a well-established trading range via a gap, that is a breakaway gap.
Runaway gap- A runaway gap occurs when trading activity skips sequential price points, usually driven by intense investor interest. In other words, there was no trading, defined as an exchange of ownership in security, between the price point where the runaway gap began and where it ended.
Exhaustion gap- An exhaustion gap is marked by a break lower in prices (usually on a daily chart) that occurs after a rapid rise in a stock’s price over several weeks prior.
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