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We interpret by knowing:
1- Type of gap formed i.e. at which place of trading range.
2- The characteristics of the gap formed.
3- Traded volume of the day.
It is used to interpret the phase of the trend. And how long the trend will sustain
it is done with the help of identifying gaps at different trading range and determining its characteristics at the particular range and identifying the type of gap
With gap analysis we can see the trend and the market direction. If the gap analysis is within the trading range it called as area gap and this has no significance. If there is a bullish breakout gap then this indicates the buy signal. If there is a runaway gap all the more it is a positive sign and signal to go for a buy. When we come across an exhaustion gap that indicates the end of a trend and it is time to sell and book profits of already bought stocks and strong signal for short sell.
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