Gaps on the market curves are also patterns, carrying important and useful information. Gaps are empty spaces between two consecutive trading periods. In case of an upward trend, a gap indicates that the next day’s minimum is going to stay above the maximum of the previous day. If there is a downward trend, the opposite will happen. According to the principals of the technical analysis, the gaps are going to disappear due to basic market mechanisms. Gaps are observable on a daily basis. Weekly or monthly trends are rather rare. Gaps can last 1-2 days, a week, or even several months, and sometimes it happens when gaps are not filled. Gaps indicate the beginning, the end, or the widening of a process.
There are four categories of gaps:
- Common gap
- Breakaway gap
- Runaway (or measuring) gap
- Exhaustion gap