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

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

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

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

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

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