Exhaustion gaps

Exhaustion gaps represent the end of a move. They occur at the top of an uptrend or at the bottom of a downtrend on heavier-than-nor-mal volume. They represent a grand finale and final exuberant push of the forces behind them. Exhaustion gaps are often the product of amateurs who are late to the party. They also occur because of panic shorts in response to an up exhaustion gap, or panic longs in response to a down exhaustion gap.

Exhaustion gaps can be spotted easily with candlestick charts, because they often take the form of island tops or bottoms, rising or falling dojis, or abandoned babies. All of these patterns are reversal patterns with gaps. Exhaustion gaps also take place at levels of support and resistance. Exhaustion gaps are often accompanied by strong moves in the stock's sector, which adds fuel to the fire.

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