GAP ANALYSIS – A KEY TO SUCCESS

Gap indicates the strength. it appears due to difference in trading range. Gaps are areas on a chart where the price of a stock moves sharply up or down, with little or no trading in between. As a result, the asset’s chart shows a “gap” in the normal price pattern. The enterprising trader can interpret and exploit these gaps for profit. Gaps are named based upon where they occur whether occurs in trending area or non trending area. Various types of Gaps are 1. Area Gap 2. Breakout Gap 3. Runaway Gap 4. Exhaustion Gap.
The Area GAP occurs in non-trending area. It is expected to be filled as both the buyers and sellers are present. The volume is expected to be LOW during the typical trading gap day. It does not signify anything.
Breakout Gaps are gaps that appear during the beginning of a new trending area. This gap is not expected to be filled. There should be good volume during breakout. If breakout happens during bullish trend it means bulls have taken control.As long as this gap is open Bulls are very powerful.
Runaway Gap appears after the breakout while moving forward due to getting some support global or otherwise. At Breakout sellers lost their ground. They could not control the price. When this trend continued, sellers become diffident and move out of their position and start buying. This literally means sellers are running away. Volume may not be high.It is not expected to be filled.
When a day opens with a major gap but the gap got closed during the same day or next day it is called Exhaustion Gap. Here buyers started to book profits. it may appear after a significant rally. It terminates a trend.It is difficult to identify as gap will not be visible.