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Gaps

Gaps

Why Gaps Occur

  • Good/bad earning announcements that differ from market expectations
  • News / geopolitical events
  • Overall market sentiment shifts
  • Order imbalances — big buy/sell orders from institutional traders
  • Rumours — company partnering, leaked info, speculation

92% of gaps eventually get filled — so gaps are always good targets. If you know traders target them and they align with other areas of confluency (zag zone, S/R, Fibonacci), they're great profit-taking zones.

Types of Gaps

Gap types overview

The natural sequence within a trend: Breakaway gap (start of trend) → Runaway gap (middle, public participation) → Exhaustion gap (end, excess phase reversal). Maps directly to accumulation breakout → public participation → excess.

Common Gaps

  • Appears in a weak or calm market
  • No reason or catalyst for the gap — just minor supply/demand imbalances, market noise, routine technical adjustments
  • Often filled quickly — 100% of common gaps get filled
  • Low volume — no significant surge in trading activity
  • Useful for scalping — if something gaps up for no reason, there's a good chance it fills that day or within a few days. Look for nearby unfilled gaps as profit targets
  • Real trade example: Sonic Healthcare gapped up for no reason → educator entered knowing the gap would fill → price came back and filled it same day, also filling a prior gap below. Then the next nearby unfilled gap above became the next target

Common gaps example

Breakaway Gaps

  • Price suddenly breaks through a well-defined structure (support or resistance) in the form of a gap
  • Usually confirms a breakout — signals the start of a new trend
  • Happen at the end of a consolidation pattern or range and usually mark a new trend beginning
  • Larger than common gaps — reflects a strong shift in market sentiment
  • Usually followed with a significant increase in volume — confirms breakout strength
  • Do NOT fill quickly — represents a decisive market move, price generally continues in the gap direction
  • Stop loss: Below the gap for upward breaks, above the gap for downward breaks. The gap itself acts as S/R
  • Usually caused by:
    • Earnings reports (exceed or fail to meet expectations)
    • News announcements (mergers, acquisitions, regulatory changes)
    • Market sentiment shifts
    • Technical breakouts (breaking key S/R where stop losses are clustered)
  • A2 Milk example: Had THREE breakaway gaps in succession — each one gapped below a major support level on high volume. Earnings downgrade after earnings downgrade, each time breaking the next support. The high volume on each confirmed institutional money exiting

Breakaway gaps example

Runaway Gaps (Continuation / Measuring Gaps)

  • Appears when the market is gaining or falling quickly — in the middle of an established trend
  • Signals dominant buyers or sellers — high probability of continuation
  • Usually NOT filled (until the trend eventually ends and the major correction begins)
  • Followed with moderate to high volume — confirms trend strength
  • Usually in the public participation phase — where the public starts getting involved and everyone piles on
  • Measuring tool: The distance from the trend start to the runaway gap can be projected forward to estimate the potential remaining length of the trend (similar to a bull flag measured move)
  • If you see a runaway gap, don't take profit at the next resistance — the trend still has momentum and should continue. It's telling you NOT to exit yet
  • How to distinguish from exhaustion: Runaway gaps happen in the MIDDLE of the trend. If you're getting gaps at the PEAK after a long overextended run = exhaustion, not runaway

Runaway gaps example

Exhaustion Gaps

If you gap and then pivot within a few days, it's most likely an exhaustion gap

  • Occur near the end of an existing trend, after a prolonged price movement — the trend is reaching its climax
  • Usually accompanied by a spike in volume — the final rush of buying/selling (capitulation or complete greed) before the trend reverses. This volume often includes retail traders, indicating the end of institutional interest
  • Exhaustion gaps are likely to be filled quickly as the market corrects and reverses
  • Signal a high probability of a trend reversal
  • Can be used to enter a trade in the opposite direction — exhaustion gap at the bottom might be a good time to enter long
  • Everything usually looks very overbought (RSI above 80) or the gap happens into bearish divergence
  • How to confirm it's exhaustion:
    • RSI very overbought when the gap occurs
    • OBV/volume showing institutional money NOT confirming the move (lowering OBV = retailers driving it, not big money)
    • Pivot within a few days (doji → bearish engulfing after the gap = classic exhaustion confirmation)
    • Already at the excess phase of the trend
  • Zip example: Breakaway gap (start) → Runaway gap (middle) → Exhaustion gap (end). RSI very overbought when the exhaustion gap occurred, followed immediately by a doji and bearish engulfing = confirmed exhaustion. Same pattern on NVX and LKE

Professional Gaps (Institutional Gaps)

  • Caused by actions of institutions, usually from:
    • Earnings reports
    • Portfolio rebalancing based on macro trends
    • Insider/privileged information or proprietary analysis
  • Show sentiment and strategic decisions of institutional players
  • Can remain unfilled for a long time if they reflect long-term institutional positioning — especially mining discoveries
  • Usually after major announcements — e.g. PointsBet expanding to America, mining companies announcing discoveries
  • These signal the very beginning of a new trend — institutional money flowing in
  • In Australia, most common with miners making discoveries — institutions unpack the report, like what they see, and start buying. Sometimes takes days as they read more and keep buying
  • PDN example: Went from $0.006 to $0.019 in one gap (tripled), then 10x within two days as institutions kept reading the report and buying. Eventually went to $0.30+ — nearly 100x. That gap never filled because it was a genuine major discovery
  • 3DP example: Institutional money came in at $0.05, gapped up to $0.08, eventually went to ~$1

Fair Value Gaps (FVGs)

  • A place where price has moved too quickly creating a void — most popular in crypto due to 24/7 trading (no normal gaps from market close/open)
  • Not an actual gap on the chart — it's the difference between the top of one candle and the bottom of the candle two periods later, with a big candle in between. The "hidden gap" in the body of that middle candle
  • Very popular in SMC (Smart Money Concepts) — all about imbalances and liquidity
  • Usually filled quickly due to market seeking to correct the imbalance
  • Volume: low volume gaps may fill quicker than high volume gaps
  • Confluency power: If an FVG aligns with a golden pocket zone (382-618 Fibonacci), that's two independent reasons to expect a retracement to that area. Use FVGs as profit-taking targets when they align with your zag zone
  • Crypto & Forex most-filled timeframes:
    • 1 hour
    • 15 min
    • 5 min
    • 3 min

Fair value gaps example

Using Gaps for Confluency

Gaps are another tool for your confluency checklist — another river meeting the zone:

  • As targets: If there's an unfilled gap that aligns with your Fibonacci zag zone (382-618) and/or a horizontal S/R level = high-probability take-profit zone. "Profit taking is your zag zone. If you can combine that zag zone with an FVG or a gap, it's giving you more confluency to take your profit there"
  • As entries: If a gap fill brings price down to a zone where you also have support, Fib level, and bullish divergence = entry confluency
  • For trend identification: Breakaway gaps confirm breakouts. Runaway gaps confirm trend strength (don't exit yet). Exhaustion gaps warn of reversal (start looking to exit)
  • Scalping with common gaps: If something gaps for no reason, look for nearby unfilled gaps as quick profit targets — they tend to fill within hours or days
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