Skip to main content

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

Types of gaps

image.png

Common gaps

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

image.png

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

image.png

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
  • Followed with high volume
  • Usually in the public participation

image.png

Exhaustion Gaps

If you gap and the pivot within a few days, then it't most likely an exhaustion gap

  • Occur near the end of an existing trend, after appear after a prolonged price movment
  • Usually occompanied by a spike in volume - the final rush before the trend reverses
  • Exhaustion gaps are likely to be filled quickly as the market corrects and reverses the previous trend
  • Signal a high problability of a trend reversal
  • Can be used to enter a trade in the opposite side - exhaustion gap at the bottom, might be a good time to enter
  • Eveything usually looks very overbought

 

 

 

 

Professional Gaps

  • Caused by actions of institutions, usually from:
    • Earnings reports
    • Rebalacing
    • Insider info
  • Show sentiment and strategic decisions of institutional plays
  • Can remain unfilled for a long time if they reflect long term institutional positioning.
  • Usually after announcements - eg, pointbet announcing they are expanding to america.

 

 

Fair Value Gaps

  • A place where price has moved too quickly - most popular in crypto due to trading 24/7

 

 

 

 

 

 

 

 

 

 

Back to top