A stock gap is a gap/discontinuous space created in a security’s chart at the point where its price either rises or falls from the previous day’s close as no trading occurred in between.
Occurrence: Gaps occur mainly when any such news comes during the closed market hours, which causes the security fundamentals to change overnight. The news could be about earnings call, new contract information, etc. This causes an occurrence of huge number of buyers/sellers overnight, hence creating a gap up or gap down the next day.
Common Gap: A common gap is a gap which does not occur owing to any major news/event. These gaps are re-filled relatively quickly (usually within a couple of days) when compared to other types of gaps. These are also known as “area gaps” or “trading gaps” and tend to be accompanied by normal average trading volume.
Breakaway Gap: A breakaway gap occurs when the price gaps above a support or resistance area. When the price breaks out of a well-established trading range via a gap, that is a breakaway gap. A breakaway gap could also occur out of another type of chart pattern, such as a triangle, wedge, cup and handle, rounded bottom or top, or head and shoulders pattern.
Runaway Gap: A runaway gap occurs when trading activity skips sequential price points, usually driven by intense investor interest.
Exhaustion Gap: An exhaustion gap occurs when a security takes a break after a rapid rise in a stock’s price over several weeks prior indicating a shift from buying to selling activity owing to the falling demand for a stock. This also implies that the upward trend may be about to end soon.
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