GAP ANALYSIS : The empty space between the closing price of the previous day and the opening price of the present day is called as gap in technical analysis.
AREA GAP : The gap appears in non trending area. Here the volume should be low and the gap will be filled soon.
BREAKOUT GAP : The gap appears while moving from non trending to trending area. If the gap is filled then it cannot be considered as breakout gap. Here the volume should be high.
RUNAWAY GAP : The gap appears after the breakout . It should have some significant volume.
EXHAUSTION GAP : The Gap occurs during the opening of the day and gets closed onthe same day i.e at the end of the day.
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Gap are used to understand the strength of the existing trend. Hence it can be used to complement the other price patterns.
It is recommended to arrive the levels from the price patterns / Dow theory / candlestick analysis. But Gap can be used to confirm the strength of the breakout.
If we witness the weakness, we can recommend the traders to exit using Gap..