GAPs occur when the opening price of the market is away from its closing price of the previous session indicating an unfilled space/interval in the chart. It carries a substantial risk if the price movement is against the expected direction.
The price GAPs are broadly divided into four types.
(a) Area Gap – Which occurs in a non-trending zone and accompanied by low volume. It always gets filled in the near term.
(b) Break Out Gap – This occurs when the stock price moves from non-trending range to trending range. Generally, have high volume during the gap day.
(c) Runaway Gap – This occurs in the trending zone and indicates a continuation of the trend. Has high volume and don’t get filled in near term.
(c) Exhaustion Gap – Though this gap is difficult to spot, but it carries the most important aspect of trend termination. In this case, the price opens with a gap and gets filled in the same day.