Technical Analysis and Beyond


Chart Pattern Extended Section - GAPs

There is an old saying that “the market abhors a vacuum and all gaps will be filled”. Many market participants have observed how markets behave when gaps occur. So, what is a Gap? A gap is an area on the chart where no trades have occurred. Normally, gaps can be spotted between the closing of the market and opening of the very next trading day, or during major news releases that have a severe influence on the market(s) and/or asset class(es) that you are trading.

Gaps can offer evidence that something important has happened to the fundamentals or the psychology of the crowd that accompanies the given marketing movement. Figure 4.1 below is an example of gap. It is easier to spot a gap on a chart that has shorter time intervals,such as a chart in  1 hr or 1 day increments , as opposed to a chart with longer time intervals, such as a weekly and monthly increments chart.

(Figure 4.1)

There are 4 basic categories and 4 basic types of gaps:

Categories of Gaps:

  • Breakaway Gap

  • Common Gap

  • Exhaustion Gap

  • Measuring Gap

Types of Gaps:

  • Full Gap Up

  • Full Gap Down

  • Partial Gap Up

  • Partial Gap Down

** Figure 4.2

Chart Pattern Extended Section - GAPs