This section talks about what GAPS mean and what are the various GAPS. It also tells us how to use GAPS effectively and how to spot trend reversals by using the GAP.
- : Difference in the trading range is called as GAP in Technical analysis.GAP indicates strength and identifies the phase of the trend.
- : GAP can be named based on the place of its occurrence. Four types of GAP are Area GAP, Breakout GAP, Runaway GAP, Exhaustion GAP.
- : GAP appears due to the difference in the trading range. Overnight risks occur because of the external factors which affects the stocks after closing of the market; This results in the opening price to be higher or lower than the previous day opening or closing price.
- : Area gap appears inside the trading range and may be filled in subsequent days. Volume is generally low. If the volume seem to be high or not filled in days bullishness may be expected.
- : GAP which occurs during the beginning of the new trend is called as Breakout GAP. Volume should be high. It should not get filled in future. Breakout GAP indicates the strength of the trend.
- : GAP which occurs in the trending area after breakout is called Runaway GAP. It may extend the rally due to unwinding of existing positions. Volume may not be higher. Gap is not expected to be filled, which indicates the strength of the trend.
- : Exhaustion GAP appears after significant rally. When the stock opens much higher than the previous day close resulting in the formation of GAP, which gets filled with the price fall at the end of the day, makes it difficult to spot. High Volume is required for the termination of the trend.