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Strategies & Market Trends : Ask DrBob
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To: Drbob512 who started this subject10/3/2000 4:26:39 AM
From: TraderMERL   of 100058
 
GAPS: A Trip Down Memory Lane
This is from one of Dr Bobs old columns and really helps identify the characteristics of different gaps, and their expected path in life:

Breakaway gap: The most common gap that occurs out of a channel or consolidation formation, such as a pennant or flag. It marks the beginning of a strong price move. If the volume before the breakaway gap is higher than the volume afterward, then the gap has a good chance of being filled (to trade in that space). If the volume is higher on the days after the breakaway gap, then it is much less likely to fill.

Runaway gap: Sometimes called a continuation gap, because it occurs in the middle of an established trend. Thus, you can expect the price to move approximately the same amount after the runaway gap as it did before the gap. Runaway gaps are not usually filled until a later intermediate or major price.

Exhaustion gap: An explosive last move of a trend, caused by huge demand or supply. It can be at the end of a few gap moves in a row. The last day is usually characterized by huge volume and a reversal at the close or the very next day. It looks like a breakaway gap until the reversal. Occasionally an exhaustion gap will lead to a consolidation and then a continuation instead of a reversal.

Island gap: Sometimes called an island reversal gap. It is a gap that is typically one to three days of price action which is gapped away above or below the prior days' action and looks like an isolated "island" on the charts.
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