There four different types of gaps –
Area / Common Gaps,
Runaway Gaps, and
Gaps are easy to spot but determining the type of gap is much harder to figure out.
- : Gaps typically occur when a piece of news or an event causes a flood of buyers or sellers into the security. It results in the price opening significantly higher or lower than the previous day’s closing price. Depending on the kind of gap, it could indicate either the start of a new trend or a reversal of a previous trend.
- : Gaps are easy to spot but determining the type of gap is much harder to figure out. - There four different types of gaps – Area/Common Gaps, Breakaway Gaps, Runaway Gaps, and Exhaustion Gaps.
- : hen the opening price is much higher than the previous days closing a gap appears in chart.this happen mainly due to major positive sentiments in US markets or asian markets.,or due to any positive news for that company known after the closing. Overnight risks refers the risk of what happens to the market while the exchanges are closed and you are not able to exit your positions.The best way to deal with gap risk are to avoid holding positions in time of results or other major event day.
- : Area gap appears inside the trading range and the area gap may be filled in near term.The volume during the gap day is generally low.
- : Breakout gap appears only when the price give breakout from its trading range and the area gap may not be filled in near term. The volume during the gap day should be high.
- : Post Breakout, The Runaway scenario takes place and the Runaway Gap appears inside this area.Area Gap may not be filled in near term.The close should be at its day's high during Runaway Gap.The volume is distributed evenly during the day.
- : The Gap that appears after a trending zone seems to be a Runaway Gap, but if it gets filled on the same day then it is considered as Exhaustion gap.The close should be at its day's low during Runaway Gap.The volume should be very high during the day to terminate the existing trend. When price momentum slows, an exhaustion gap is likely to occur. Exhaustion gaps signify the last push in a direction before the security shows a reversal. Exhaustion gaps can be difficult to identify and may be easily confused with runaway gaps.