TECHNICAL ANALYSIS NOTES

GAP THEORY

A gap is an area on a price chart in which there were no trades. This occurs when there is a large
difference in prices between two trading period. Gaps occur more frequently on daily charts, where
every day there is an opportunity to create an opening gap. Gaps are found on bar charts &
candlestick charts but not on point & figure charts or line charts. Gaps can be divided into four types:

1. Common Gap
Common area Gap occurs when market moves in a sideways manner and there are no
technical importance of such gaps because it can’t takes the price beyond boundaries.
Common area gap usually get filled up within 2/3 trading sessions. It is also referred as
trading gap/Area gap

2. Breakaway Gap
When price comes out from a trading range with a gap is known as Breakaway Gap. It gives
us the first indication that the price structure after a long consolidations entered into a highly
trending-phase. (high volume need for VALID BREAK-OUT)

3. Runaway Gap
Run-away Gap occurs in the mid-point of the Rally. It is also known as measuring Gap
because it can measure the next movement. At first measure the distance between Break-out
gaps and Run-away gap and there project the same distance from the point of run-away gap.

4. Exhaustion Gap
Exhaustion gap is nothing but a converged run-away gap. Any run-away gap which gets
filled-up within 3-4 trading sessions converted into exhaustion gap. (a trend where going to
take reversal)

DOUBLE TOP
Double top formation is at the top of the uptrend and makes pairs of peaks of same heights.
The two peaks are separated by a minimum in price, a valley. Formation is somewhat of M
shape.
Features:
1. Prior trend: In the case of double top a significant uptrend of several months should be in
place.
2. First peak: It marks the highest point of the current trend.
3. Trough: Once the first peak is reached, a decline takes place that huge in size.
4. Second peak: Second peak occurs with low trading volume and again reaches the second
highest point. The time period between peaks ranges between 1-3months.
5. Decline from second peak: This decline is occurred when there is more supply then the
demand.
6. Support Break: The double top pattern is said to be complete when the support breaks
from lowest point between the peaks.
7. Price target: It is calculated by subtracting the distance from the support break to peak
from the support break.

DOUBLE BOTTOM
Double bottom is inverse of double top. Double bottom formation is at the bottom of the
downtrend and makes pairs of peaks of same heights. The two peaks are separated by a
minimum in price, a valley. Formation is somewhat of W shape.
Features:
1. Prior trend: In the case of double bottom a significant downtrend of several months should
be in place.
2. First Trough: It marks the lowest point of the current trend.
3. Peak: once the first trough is reached, a increase in the volume takes place. It indicates that
demand increases.
4. Second Trough: Once the first peak is reached, a decline takes place with low volume and
meets the support line from the previous low.
5. Resistance Break: Breaking resistance from the highest point between the trough
completes the double bottom. This occur with an increase in volume.
6. Price target: It is calculated by adding the distance from the resistance break to trough low
of resistance break.
SUPPORT & RESISTANCE
In stock market technical analysis, support and resistance is a concept that the movement of
the price of a security will tend to stop and reverse at certain predetermined price levels.
Support and Resistance is one of the most important and fundamental parts of technical
analysis:
Support: Typically expected that prices should rise after touching support.
Resistance: Generally expected that prices should fall after hitting resistance.

SUPPORT: A straight line that connects three or more data points of a stock’s closing price
or low price is called a support.
Support is the point where buying pressure is more than the selling pressure or you can say
demand is greater than the supply. When stocks trades near support level it can be utilized as
buying opportunity by keeping support as stop loss for your trade. Support is the
psychological point where traders are willing to buy on the expectation that the stock price
won’t drop more.

RESISTANCE: Resistance is the point where selling pressure is more than the buying
pressure or you can say supply is greater than the demand.
Resistance is the psychological point where traders are willing to sell with the expectation that
the stock price won’t increase more. It is also considered as ceiling because these price levels
prevent the stock from moving the price upward. When the stock trades near resistance level,
trader/investor can liquidate his buy position or he can use this as a selling opportunity by
keeping the resistance line as stop loss.