A Technical Approach To Trend Analysis: Practical Trade Timing for Enhanced Profits

Gaps

Another familiar formation in Western technical analysis is the gap. This is by no means a rare pattern; gaps are found often on stock charts and come in many forms.

First is the common gap, which offers no particular significance to interpreting the price chart. One test of a common gap is to see how quickly it gets filled (meaning price retreats to cover the range of prices represented in the gap). It is often the case that common gaps are filled immediately or quickly.

A gap with greater meaning is the breakaway gap. This is so called because it sets up a move in price outside of the established trading range. When this occurs in a direction opposite the prevailing trend, it can be a strong reversal signal. However, because the price ...