Gap Analysis used to identify the strength of the market. Dow Theory, Price Patterns, Candlestick Analysis etc. may not give the required directional movements. The strength of these analysis can be identified by using Gap Analysis. Gap indicates the strength of the trend and appears due to difference in trading range. There 4 types of gaps: Area Gap, Breakout Gap, Runaway Gap and Exhaustion Gap. If we can spot these Gaps 90% of the job is done. Since Line Charts may not show any gaps, we should spot the Gaps in price charts only by using Candlestick Gaps.
Qualify the recent price action as Trending or Non Trending area. The characteristics of above 4 gaps discussed herein above.

  • : Gap Analysis used to identify the strength of the market and directional movements (analysis) like Dow Theory, Price Patterns, Candlestick. The strength of these analysis can be identified by using Gap Analysis. Gap Analysis involves the comparison of actual performance with potential or desired performance.
  • : Gap indicates the strength of the trend. It helps to locate the phase of trend and appears due to difference in trending range i.e., Demand and Supply with low volume. There are 4 types of GAPs: (a) Area Gap; (b) Breakout Gap;(c) Runaway Gap and (d) Exhaustion Gap.
  • : Line charts do not show any gaps as they are connected with lines. So we should use Candlestick charts wherein the gaps are clearly visible. There is an old saying that the market abhors a vacuum and all gaps will be filled. While this may have some merit for common and exhaustion gaps, holding positions waiting for breakout or runaway gaps to be filled can be devastating to the portfolio. Likewise, waiting to get on board a trend by waiting for prices to fill a gap can cause you to miss the big move.
  • : To qualify for the Area Gap, the recent price action should be in Trending or Non Trending Area. Area gap will appear inside the trading range and may be filled in near term; The volume during the gap day is generally low.
  • : This Gap appears during the beginning of new trend between demand and supply zone(non trending area) with low volume. The GAP might be appeared due to external support and will get filled in near term.
  • : A Runaway Gap appears after breakout and may be extend the rally due to unwinding of existing positions. A runaway gap is a gap of 5% or more that occurs in the direction of a trending price. It is characterized as a runaway gap because of the timing of its occurrence. It is also typically associated with high volume trading supporting the gap.
  • : This appears after a significant rally and generally terminate the existing gap. It appears in the trending area like runaway. Opens at high level. But by the end of the day it covers all the gap and closes in low level. It indicates the termination of the trend. Since this gap is not visible,it is difficult to spot.
1 Comment
  1. Naresh 3 years ago

    Hi,
    Your work is good

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