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Gap Theory

How to earn profit on Open Gaps

Breakaway gap
Occurs at reversal point i.e. at the start of new rally. It
occurs when change in sentiment is strong and coming
move will be powerful. We call this break away gap as
Gap-Up reversal pattern. We take entry for delivery on this
Measuring Gap
Also known as a runaway gap, formed usually in the half
way of a price move i.e. rally. It is more likely to occur
approximately in the middle of rapid advance or decline. It
can be used to measure roughly how much further ahead a
move will go. Measuring gaps are not normally filled for a
considerable period of time.

Exhaustion gap
An exhaustion gap occurs at the end of a price move.
When it is formed at the top, there is significant chance that
the market is exhausted. A genuine exhaustion gap is
filled within 1 to 3 days. Exhaustion Gaps follow the
Runaway Gaps and usually occur when the runaway Gap is
nearing completion. Exhaustion Gaps do not indicate
whether the trend will reverse, they only indicate a halt in
the price movement.