Gap Types

Open t 1

■28.40 ■28.20 ■28.00 ■27.60 ■27.60 ■27.40 •27,20 •27.00 26.80 26.60 26.40

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Common Gap

Common gaps form more often in quiet and trend less markets with a small increase in volume. Common Gaps occur more often than other Gap forms. These Gaps should be avoided by most traders if the gap range is very small. Some experienced traders may trade common Gaps with quick entry and exit rules. Trading against (fading) the common gap is the only way to profit from common gap patterns. These trades should be quick as an entry of "short" may be placed for an upside gap, as the prices reach new highs. Place a stop above the new high, and place targets at the lower-end of the gap range. For a downside gap, wait for prices making new lows and enter a "long" trade. Place a "stop" below the recent low, and place a target near the high of the gap range.

106.00 104.00 ; 102.00 100.00 98.00 ■ 96.00 94.00 ;


Breakaway Cap


May 07

Breakaway Gap

Breakaway gaps are most reliable and are easy to visually detect. Breakaway gaps occur when prices rise out of a congestion zones or long base trading areas. They usually have heavy volume on the breakout. These gaps do not close quickly as they initiate a trend from congestion zone and stay in the trend for a long time before a reversal occurs. From the congestion zone breakout, prices make higher highs for a few bars, usually with gaps in between them, and for breakdowns prices they make lower-lows for a few bars. Breakaway Gaps present an excellent trading opportunity. Enter at the beginning of the trend in a breakaway gap and place a "stop" order below the low of the bar prior to the gap. Targets usually set a previous major swing high. Close the trade after 3 to 4 days of upside movement.

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