Types of Gaps in Technical Analysis
GAP Theory is very famous among the Traders and Analysts. In stock market trading, a gap is a space on the price chart where no trading activity has taken place. This happens when the opening price is significantly higher or lower than the previous day’s closing price. Gaps can provide powerful insights into market psychology, trend strength, and potential reversals.
Below are the main types of gaps traders watch closely:
1. Common Gap (Area Gap / Trading Gap)
Definition:
common Gap also known as area Gap or Trading Gap. A small gap that usually appears in quiet markets without any major news or trend change.
Characteristics:
- Found in sideways or range-bound markets.
- Price often returns to “fill” the gap quickly.
- Usually accompanied by low to moderate volume.
Example:
If a stock closes at ₹100 and opens at ₹102 without any major news, it’s likely a common gap.
2. Breakaway Gap
Definition:
Breakaway Gap is a strong gap that signals the start of a new trend, often breaking out from a chart pattern or key price level.
Characteristics:
- Forms after periods of consolidation (triangles, rectangles, head and shoulders).
- Supported by high trading volume.
- Rarely gets filled in the short term.
Example:
A stock trading between ₹150–₹160 suddenly opens at ₹170 with strong buying activity.
3. Runaway Gap (Continuation Gap / Measuring Gap)
Definition:
Run away gap also know us Measuring gap or continuation Gap. Runaway gap occurs in the middle of a strong trend, indicating momentum is accelerating.
Characteristics:
- Appears during both bullish and bearish trends.
- Signals that the existing trend is likely to continue.
- Can be used to project potential price targets.
Example:
If a stock rises from ₹100 to ₹150, gaps up to ₹160, and continues toward ₹200, that’s a runaway gap.
4. Exhaustion Gap
Definition:
A gap that appears near the end of a long trend, often signaling the last burst of buying or selling pressure before a reversal.
Characteristics:
- Often driven by panic buying (in uptrends) or panic selling (in downtrends).
- Accompanied by heavy trading volume.
- Frequently followed by a sharp trend reversal.
Example:
A stock rallies for weeks, then gaps up on extreme optimism, but quickly falls in the next few sessions.
5. Island Reversal Gap (Cluster Island)
Definition:
A unique pattern where two gaps occur in opposite directions, trapping price in a small “island” on the chart.
Characteristics:
- Often appears at market tops or bottoms.
- Strong reversal signal with high reliability.
- Can lead to sudden, sharp price movements.
Example:
A stock gaps up and trades sideways for a few days (forming an island), then gaps down sharply, leaving that island isolated.
Quick Reference Table
| Gap Type | Position in Trend | Signal Type | Volume Impact | Gap Fill Chance |
|---|---|---|---|---|
| Common Gap | Anywhere in range | Minor movement | Low–Medium | High |
| Breakaway Gap | Start of trend | Trend initiation | High | Low |
| Runaway Gap | Middle of trend | Trend continuation | Medium–High | Low |
| Exhaustion Gap | End of trend | Possible reversal | High | Medium–High |
| Island Reversal | Top or bottom | Strong reversal | High | Low |
Key Takeaway for Traders
Understanding the different gap types can help traders spot trend breakouts, continuation signals, and reversal points more effectively. Always combine gap analysis with volume, chart patterns, and market context for higher accuracy.
Wanted to learn Technical Analysis Course in Delhi or Online call us Now at 8287996284