Technical Analysis Plain and Simple: Charting the Markets in Your Language, Second Edition

Exhaustion Gaps

The last of the classified types is called an exhaustion gap because it occurs near the end of the move to signal a last push toward new highs or lows. It is sometimes too difficult to identify this type of gap because it appears in a trending market just like a continuation gap. Price action in the days immediately following the gap helps the analyst determine which kind of gap it was. Whereas continuation gaps are followed by a continuing strong trend, exhaustion gaps are followed by more congested, sideways market action. Such signals as oneday reversals help identify which gap has occurred.

Prices usually trade back to fill the gap and when they do, it is a good sign that the move is over. The gap represents the market “frenzy” ...