Gaps are patterns that occur when there is a significant increase or decrease in a stock's price, creating a space between two trading periods. They can be a sign of a potential trend reversal. There are three main types of gaps: Breakaway gaps, runaway gaps, and exhaustion gaps.

Breakaway gaps occur at the beginning of a trend, when there is a sudden increase or decrease in price that creates a gap. This can be caused by a significant news event or other market factors. Runaway gaps occur during the middle of a trend when the price continues to move strongly in one direction, creating a gap in the chart. Exhaustion gaps occur near the end of a trend when the market is starting to lose momentum, and the price begins to move in the opposite direction.

It's important to note that gaps can be filled, which means that the price may move back to fill the gap at a later time. Traders should also use other forms of analysis and risk management techniques to make informed trading decisions, as false signals can occur, and gaps may not always be a reliable indicator of a trend reversal.

Last updated