-When a stock ends the day at a certain level and then starts at a new level even though no trades took place.
-Gaps are usually from one day to the next.
-The reason is that something within the company or industry can change: earnings report, etc.
-Weekly charts can also have gaps, but that usually happens over the weekend and it isn’t as common.
4 Types of Gaps:
1. Common:
Likely caused by low trading volume.
It will usually be filled (prices slowly revert to that gap).
2. Breakaway
-More meaningful than common gaps
-They can happen in the middle of the trading day
-They have a downward momentum
-Suddenly the stock dips down below the support line. The gap is between the support line and the dip down. This is due to a change in psychology, and people start to sell their shares.
-Make sure you see an increase in volume at the gap point. That is confirmation of the downward move.
-Another way to be sure that the breakaway gap is a healthy gap is if it happens with another pattern (e.g. a descending triangle pattern).
3. Runaway
-Similar to the breakaway gap
-Instead of going to the down side it is going to the up side
-It is basically a stock price jumping up to a new level (typically due to product releases, news events, etc)
-Anything that creates positive sentiment creates a runaway gap
-There are three possibilities it can go through:
1. Downard trend and back up, hops and continues to go up
2. Upward incline, gap to incline
3. Downward trend to a slingshot upward
-Runaway gaps are more powerful when they come out of an ascending triangle or trend line.
4. Exhaustion
-Very good to trade with, if you watch them
-They can be dangerous if you are new to the stock market or are not spotting them correctly
-They happen when a stock shoots up, jumps and continues to trend up, but will eventually decline
-This can happen with a decline as well (declines, jumps down, continues to decline and then shoots up)
-You want to be cautious with these gaps because they typically happen in a state of panic
#technicalanalysis #stockgaps #stockcharts #commongaps #breakawaygaps
Posted at: https://tradersfly.com/blog/common-breakaway-runaway-and-exhaustion-gap/
🔥 GET MY FREEBIES
🎤 SUBMIT A VOICE QUESTION
👀 START HERE: FOR NEW TRADERS
🎉 START HERE: OPTION TRADERS
📈 MY CHARTING TOOLS + BROKERS
💻 MY COMPUTER EQUIPMENT
💌 GET THE NEWSLETTER
🔒 SEE OUR MEMBERSHIP PLANS
https://tradersfly.com/go/members/
📺 STOCK TRADING COURSES
📚 STOCK TRADING BOOKS:
⚽ GET PRIVATE COACHING
🌐 WEBSITES:
💌 SOCIAL MEDIA:
https://tradersfly.com/go/twitter/
https://tradersfly.com/go/facebook/
⚡ SUBSCRIBE TO OUR YOUTUBE CHANNEL
https://tradersfly.com/go/sub/
💖 MY YOUTUBE CHANNELS:
TradersFly: https://backstageincome.com/go/youtube-tradersfly/
BackstageIncome: https://backstageincome.com/go/youtube-bsi/
MyLittleNestEgg: https://mylittlenestegg.com/go/youtube/
📑 ABOUT TRADERSFLY
TradersFly is a place where I enjoy sharing my knowledge and experience about the stock market, trading, and investing.
Stock trading can be a brutal industry, especially if you are new. Watch my free educational training videos to avoid making big mistakes and just to continue to get better.
Stock trading and investing is a long journey – it doesn’t happen overnight. If you are interested to share some insight or contribute to the community we’d love to have you subscribe and join us!