Gaps in prices from one day to the next can provide the analyst information.

The study of gaps – price areas at which the market did not trade from one day to the next – can help the analyst in three ways:

To confirm the end of a move.

The following bar chart shows four different kinds of gaps that occur in an uptrending market when the low for the day is higher than the previous das's high. In a downtrending market, a gap occurs when the high for the day is lower than the previous day's low. The common gap is of no significance and is usually filled in during later trading.





The breakaway gap signals the end of a price pattern and the beginning of an important market move. In the December Hog chart, prices leaped upward at the breakaway gap. Prices do not retrace their steps and fill in this gap.

A breakaway gap occurs when prices do not retrace their steps and fill in this gap. A runaway gap occurs after the trend has begun. In the December Hog chart, prices again leaped up suddenly. The runaway gap is called the measuring gap because it often marks the halfway point of the market move. It shows that prices will probably move again as much as they already have.

An exhaustion gap occurs near the top (or bottom) of a move and warns that the top (or bottom) of the market will be reached soon. It foretells an abrupt turn in the market.




source: