Hi Shoppers,

Let’s take a break for a quick technical analysis lesson.

A lesson on gaps.

You see, a gap is created when a stock or underlying opens higher or lower than the high or low of the previous session.

It creates an area where no trades were made.

There are four types of gaps, and some are more useful than other

Shopping at the Gap

A common gap is found within a trading range and isn’t considered to be a very significant signal.

A breakaway gap is created when the underlying breaks out of or away from a trading range.

It leaves an area where no trading has occurred.

If it is not filled within a few days, it becomes one of the most significant and reliable chart signals.

A runaway gap is found within the trend and the trend accelerates.

It is a sign of a strong bull or bear trend and often happens on consecutive days.

An exhaustion gap occurs after an extended price move and is a sign of trend reversal.

This gap happens before the high or low has been reached, so it could look like a runaway gap and isn’t identified until after the stock changes course.

The Takeaway

You wouldn’t base a trade on a common gap. But the other three are great tools for spotting opportunities on the charts.

Thanks for Reading … See You Next Tuesday,

Licia Leslie