Running Head: PRICE GAPS

Result and Findings of Common Gaps & Breakaway Gaps

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Introduction
Gapping happens when the units of the selling price of a stock that was the closing price
of the previous day becomes different from the opening unit price of the same stock the
following morning. The difference in the prices must occur when there is no activity in trading in
between ("Common Gap", 2021). In a more appropriate statement, a gap is stated as the
discontinuity in security’s chart. The occurrence of gaps result from activities such as when
deadlines result to changes in the market fundamentals in a rapid manner when the markets are
typically closed. The best example for this situation is described when an earnings call after
hours happens (Woods, 2021). In another situation, gapping can also be stated as to refer to the
difference in spread in rates simulated by the borrowing and lending of banks.
Result and Findings of Common Gaps & Breakaway Gaps
The best description of a common gap is a gap that is usually found on a price chart for
an asset. These are gaps that are resultant to normal market simulators, which are very common
as represented by their name. In a graph, they are typically represented through inception of a
non-linear jump or drop running from one point to the other in the chart (Woods, 2021).
Generally, this type of a gap is not preceded by any vital event. One of their fundamental
characteristic is that they are quick to fill. This happens in a span of a few days as compared to
other types of gaps.
Another characteristic is that they are normally accompanied by normal average trading
volume ("Common Gap", 2021). Due their characteristic of being small in magnitude, normality
and regular events in the price of an asset, they are of no fundamentalism in provision of real
analytical insights. The assets that are faced with a gap that runs for a day and close for the next
day’s open are better replicators of these gaps in frequent sequences ("Gaps: Breakaway Gap,
Continuation Gap, Exhaustion Gap, and Common Gap", 2021). In most cases, these gaps are
exaggerated by certain events happening between Friday and Monday trading through the
weekend.
On the other hand, breakaway gap is characterized by not being filled initially. They
occur in instance where the price of a stock gaps over a support or resilience level. In essence, it
occurs like a breakout pattern where the actual breakout happens in the form of a gap ("Gaps:
Breakaway Gap, Continuation Gap, Exhaustion Gap, and Common Gap", 2021). They contrast
 Price Gaps 3

common gaps by their natural characteristic of showing decisive movements out of a range or
other chart patterns. Sometimes other chart patterns might result to a breakaway gaps. Such
patterns include triangle, wedge, cup, and handle, rounded bottom or top, or head and shoulder
pattern ("Gaps: Breakaway Gap, Continuation Gap, Exhaustion Gap, and Common Gap", 2021).
The essence of breakaway gaps is to signify a new trend. In a typical situation, the when
a prior trend is down, the resultant is a formation of a large cup and a handle pattern (Woods,
2021). Therefore, a breakaway gap results from the upside above just above the handle.
Essentially, this has confirmed that the downtrend is over and the uptrend is now starting to
shape up. The breakaway gap is viewed as a strong conviction for the buyer. In the example
above, it evidences that there is a further upside in addition to the chart pattern breakout.
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References
Common Gap. Investopedia. (2021). Retrieved 11 June 2021, from
https://www.investopedia.com/terms/c/commongap.asp.
Gaps: Breakaway Gap, Continuation Gap, Exhaustion Gap, and Common Gap. Finvids.com.
(2021). Retrieved 11 June 2021, from http://www.finvids.com/Chart-Pattern/Gaps/.
Woods, G. (2021). The Complete Breakaway Gap Trading Guide. Trading Setups Review.
Retrieved 11 June 2021, from https://www.tradingsetupsreview.com/complete-breakaway-
gap-trading-guide/.