Gaps

Gaps occur because

• Good / bad earning announcements that are different to market expectations
• News / Geopolitical events
• Overall market sentiment
• Order imbalances - big buy/sell orders
• Rumours - company partering with another company, leaked info

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Types of gaps

Common gaps

• Appears in a weak or calm market
• No reason or catlyst to the gap
• Often filled quickly

 

Breakaway gaps

• Price suddenly breaks a a well defined structure (support or resistance)
• Usually confirms a breakout
• Usually comes from news or big events
• Happen at the end of a consolidation pattern or range & usually mark a new trend
• Usually follows with a significant increase in volume
• Do not fill quickly
• Usually cause by:
  • Earning reports (Exceed or fails to meet expectations)
  • Regulatory changes
  • Market sentiment
  • Geo-political events

Runaway gaps (continuation / measuring gaps)

• Appears when the market is gaining or falling qucikly
• Signals buyers or sellers dominant
• High probability of continuation
• Usually not filled