A gap represents an area where no trading takes place. There are four different types of gaps – Common Gaps, Breakaway Gaps, Runaway Gaps, and Exhaustion Gaps – each with its own signal to traders.
Area gap or common gap- Common gaps generally get filled relatively quickly (usually within a couple of days) when compared to other types of gaps. Area gap will appear inside the trading range and may be filled in the near term. The volume during the gap day is generally low.
Breakout gap- A breakaway gap occurs when the price gaps above a support or resistance area, like those established during a trading range. When the price breaks out of a well-established trading range via a gap, that is a breakaway gap. Breakout gap appears only when the price gives breakout from its trading range and may not be filled in the near term. The volume during the gap day should be high.
Runaway gap- A runaway gap occurs when trading activity skips sequential price points, usually driven by intense investor interest. Area gap may not be filled in the near term and close should be at its day high during runaway GAP. The volume is distributed evenly during the day.
Exhaustion gap- An exhaustion gap is marked by a break lower in prices (usually on a daily chart) that occurs after a rapid rise in a stock’s price over several weeks prior. The close should be at its day’s low during the runaway gap. The volume should be very high during the day.
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