Gaps

A gap is an empty space that appears on the chart when price opens far from the previous period’s close, so that no trading occurs between the two candles at the intermediate prices. It usually happens because of sudden news or a build-up of orders outside trading hours.

Types of gaps

• The breakaway gap — appears at the start of a new move, often with the breakout of a pattern or an important level, and indicates real strength.
• The runaway gap — appears in the middle of a strong trend and confirms its continuation, occurring roughly at the midpoint of the move.
• The exhaustion gap — appears near the end of an extended trend and warns that its reversal is near.