Common Gaps

A common gap is a price gap found on a price chart for an asset. These occasional gaps are
brought about by normal market forces and, as the name implies, are very common. In other
words, common gaps tend to be partial gaps and occur on a more frequent basis due to normal
trading activity. They occur when the opening price is above or below the previous closing price,
with no trading activity in between. They are represented graphically by a non-linear jump or
drop from one point on the chart to another point. Moreover, common gaps are also known as
"area gaps" or "trading gaps" and tend to be accompanied by normal average trading volume.
Common gaps provide no significant analytical insight because they are modest, routine, and
rather regular events in the price action of an asset. These gaps are common in assets that have a
break from one day's market close to the following day's open, and they can be exacerbated by
events that occur over the weekend between Friday and Monday trade.

Breakaway Gaps

In technical analysis, a breakaway gap is a word that describes a powerful price movement
through support or resistance. A gap is a price differential between the open and previous closing
prices where no trading activity occurs. A gap separates the price from the support or resistance,
as opposed to an intraday breakout. When the price moves out of a trading range or after a trend
reversal, breakaway gaps are common early in a trend. A breakaway gap could also occur out of

1
another type of chart pattern, such as a triangle, wedge, cup and handle, rounded bottom or top,
or head and shoulders pattern.

Breakaway gaps are often related with the confirmation of a new trend. For example, suppose the
past trend was down, and the price formed a huge cup and handle pattern before breaking away
to the upside over the handle. This would indicate that the downturn has ended and the uptrend
has begun. In addition to the chart pattern breakthrough, the breakaway gap, which demonstrates
high conviction on the part of the buyers, is a piece of data that points to more upside.

A breakaway gap with higher-than-average volume, or particularly high volume, indicates

significant conviction in the gap direction. A surge in volume following a breakout gap indicates
that the price is likely to continue in the breakout direction. If the volume on a breakaway gap is
minimal, the gap is more likely to fail. When the price gaps above resistance or below support,
but is unable to sustain the price, it returns to the previous trading range.

Runaway Gaps

A runaway gap appears on charts

when trading activity skips sequential price points, typically due to high investor interest. In
other words, there was no trading between the price points when the runaway gap began and
concluded, which is defined as an exchange of ownership in an asset.

Gaps in a security's price occur when the price of the security spikes significantly in either an
upward or downward direction. During a trend, a runaway gap is one of various gaps that might
emerge. This sort of gap, which is best seen on a price chart, happens during powerful bull or
bear swings and is marked by a major price change in the prevailing trend's direction.

A security's price may encounter many runaway gaps during a trend, which can assist to reaffirm
the trend's direction. Runaway gaps are thought to arise after a security has undergone a
breakaway gap, since the likelihood of an unforeseen occurrence, such as a news article, that can
support the current trend increases.

2
Exhaustion Gaps

After a significant rise in a stock's price over several weeks, an exhaustion gap is a technical
indication signaled by a break lower in prices (typically on a daily chart). This signal denotes a
large shift in purchasing to selling activity, which usually corresponds to diminishing stock
demand. The signal suggests that an upward trend is going to come to an end.

An exhaustion gap occurs when the quantity of potential buyers has decreased and sellers have
aggressively entered the market. The purchasers may have run out of steam, signaling that the
rising trend is going to come to an end as sellers’ cash in on a previously sustained advance in
the stock price. The fatigue gap has three distinct characteristics.

1. Several weeks or months of upward trend in the share price of a stock.

2. A sizable gap between the lowest price of the day previous and the highest price of the
most recent trading day (roughly half the range, or better, of an average trading day for
that stock).
3. An above average degree of trading volume taking place on the current day.

When these three components all exist in a two-day price pattern, it is usually referred to as an
exhaustion gap and technical analysts expect that this signal implies prices will trend lower over
the days and weeks ahead.

References:

Gaps and Gap Analysis [ChartSchool]. (n.d.). Stockcharts. Retrieved May 15, 2022, from

https://school.stockcharts.com/doku.php?id=chart_analysis:gaps_and_gap_analysis

3
Common Gap. (2021, November 1). Investopedia. Retrieved May 15, 2022, from

https://www.investopedia.com/terms/c/commongap.asp#:%7E:text=A%20common

%20gap%20is%20a,name%20implies%2C%20are%20very%20common.

Woods, G. (2019, September 17). The Complete Breakaway Gap Trading Guide. Trading Setups

Review. Retrieved May 15, 2022, from https://www.tradingsetupsreview.com/complete-

breakaway-gap-trading-guide/

Breakaway Gap Definition. (2021, March 31). Investopedia. Retrieved May 15, 2022, from

https://www.investopedia.com/terms/b/breakawaygap.asp#:%7E:text=A%20breakaway

%20gap%20occurs%20when%20the%20price%20gaps%20above%20a,that%20is%20a

%20breakaway%20gap.

Taparia, C. (2019, August 4). How to understand Runaway Gap and Exhaustion Gap on charts.

Moneycontrol. Retrieved May 15, 2022, from

https://www.moneycontrol.com/news/business/markets/how-to-understand-runaway-gap-

and-exhaustion-gap-on-charts-4286911.html

What Is a Runaway Gap? (2021, August 31). Investopedia. Retrieved May 15, 2022, from

https://www.investopedia.com/terms/r/runawaygap.asp#:%7E:text=A%20runaway

%20gap%2C%20typically%20seen,began%20and%20where%20it%20ended.

McDowell, J., McDowell, J., & McDowell, J. (n.d.). Exhaustion Gap: 7 Steps to Recognize and

Trade the Pattern. Trading Sim. Retrieved May 15, 2022, from

https://www.tradingsim.com/day-trading/exhaustion-gap

Exhaustion Gap Definition. (2021, March 9). Investopedia. Retrieved May 15, 2022, from

https://www.investopedia.com/terms/e/exhaustiongap.asp#:%7E:text=An%20exhaustion%20gap

%20is%20a,falling%20demand%20for%20a%20stock.