GAP ANALYSIS

On a Technical Analysis chart, a gap represents an area where no trading takes place. In an upward trend, a gap is formed when the highest price of one day is lower than the lowest price of the following day. Gaps occur when a price opens much higher or lower than the previous day’s close. Until the gap is violated, we should assume the trend will continue in the gap’s direction.
The four types of GAPS are:
1. Area Gap
3. Breakout Gap
3. Runaway Gap
4. Exhaustion Gap
Area Gap: Area gaps occur more regularly and do not always need a reason to occur. and gets filled immediately.
Breakout Gap: Breakout gaps occur when the price action is breaking out of their trading range or congestion area. To break out of these areas , the market requires many more buyers than sellers for upside breakout or more sellers than buyers for downside breakout.
Runaway Gap: Runaway gaps are best described as gaps that are caused by increased interest in the stock.
Increased buying interest happens all of a sudden and the price gaps above the previous day’s close. This type of runaway gap represents an almost panic state in traders. Exhaustion Gap: Exhaustion gaps are those that happen near the end of a good up or down trend. This indicates the end of the current trend.
They are identified by high volume an large price difference between the previous day’s close and the new opening price. There will be exceptionally high volume and indicates the start of the reverse trend.
Up and down gaps can form on daily, weekly or monthly charts and are considered significant when accompanied with higher than average volume. The gaps occur when an event or NEWS (National or International) takes place.