Price Gap

A price gap is simply an area within a particular time boundary of activity on a stock price chart, showing a price range where no actual trading occurred. There are generally four different types of price gap: the common price gap, breakaway price gap, runaway price gap, and the exhaustion price gap. A common price gap is a blank area between two consecutive day’s trading ranges. For example, today's lowest price is higher than yesterday's highest price. Technical analysts tend to believe that this type of price gap has no significance. A breakaway price gap occurs when prices suddenly explode out of a congestion formation, leaving behind an empty area in which no trading has taken place in a considerable length of time or in which no trading has ever taken place. Technical analysts tend to believe that this type of price gap may signal the beginning of a new major trend. A runaway price gap appears following an already substantial price move, signaling a further continuation of the established trend. An exhaustion price gap is the opposite, marking a reversal of or the final stages of a previous major trend.