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The significant void between the previous days closing and the next days opening is termed as Gap.
Gaps indicate the strength and weakness of the trend.
A Gap is a major, visible disconitnuity between two price bars on a chart. The void between previous day closing price and next dat opening price.
4 major Gaps are Area Gap, Breakaway Gap, Runaway Gap and Exhaution Gap.
Area Gap:
Appears inside the trading range.
Gap may be filled in near term.
Volume is generally low during the gap day.
Breakout Gap:
Appear only when price breaks out from current trading range, ie, occurs at the beginning of the trend.
Gap may not be filled in near term.
Volume should be high.
Considered the most profitable.
Runaway Gap:
Occurs after Breakout, gap may not be filled in near term.
Close should be at Day’s High and volume is distributed evenly during the day.
It continues the trend.
Exhaustion Gap:
Appears after a trending zone just like Runaway Gap but the gap gets filled the same day.
The close should be at its Day’s Low during this gap.
Volume should be high to terminate the trend.
Short tern traders find candle stick useful.
Generally volume indicates reversal of current trend.
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