Gap Analysis Basics

Gap Analysis is Used to identify strength of market, Rally strength. Not a directional indicator, tells if trend is moving with strength or lacks strength. Helps to locate current phase of strength, ie once manage to locate , can tell if we are early in trend or broken out or running away of trend or termination of trend. Appears because of difference in trading range.Naming the gap is important to identify strength. Use Candle stick to identify gap.

Area Gap :
1) Spot the gap in price charts.
2)Identify if the gap is in trending or non-trending area. And Area Gap is one which appears in non-trending area , have no significance, expect the gap to be filled. If the area gap is not filled means the counter party is not strong and expected negative breakout.

Breakout:
1) Spot the gap in price charts.
2) If the gap moved out of the ranged , with high volume is called as break out gap. It is beginning of new trend since it happens after the break out. This gap not expected to fill, since the trend is broke and the counter party is powerful.

Runaway :
1) Spot the gap in price charts.
2) After Breakout gap, while moving fwd, it opens again with Gap is the Runaway gap. Shows Strong attack. Means the counter party is running away.Volume not necessarily high. Tells trend remains strong and expected to move further.

Exhaustion Gap:
1) Spot the gap in price charts.
2)Opens with the Gap but closes the gap within a day or two is exhaustion gap. happens after trend in trending area. this gap is qualified as trend termination.