In technical analysis we depend on demand and supply to know the trend . We try to understand the reasons for the price fluctuations. Once you know this it is necessary to know the strength of the trend. Gap analysis helps us to know where we are in this trend. Whether the trend is strong or weak. Whether we are in the maturity stage or we have a long way to go.
- : GAP tells us where we are located. Whether we are moving towards maturity or not. Whether the trend is strong or weak. It is not a directional indicator.
- : Depending on the nature of the GAP it is named. The four types of GAP are: 1. Area 2. Break out 3. Runaway 4. Exhaustion.
- : When there is a big difference in price between the previous day's closing a gap will appear in charts. Overnight there might be some support from some buyers resulting in huge price difference.
- : This appears in the non trending area. Not significant and could expect the gap to be filled. In other words the buyers are not powerful.
- : Suppose the price is moving in the range of 90 to 100. Suddenly if the price jumps to 125 there is a breakout. If there is good volume we can say that the price has moved out of the range and it is the beginning of a new trend. This GAP should not be filled because bulls are powerful.
- : The runaway gap may appear after the breakout. The rally might be extended due to unwinding of the existing position. The gap is not getting filled because there are no sellers. The people who have gone short are in a difficult position.
- : After the breakout zone is suddenly a gap is formed by a high price and closes at a low price it is sign of trend termination. It may appear after a significant rally.
- : Importance of overnight risk. Elaborate please.