15 - TYPES OF GAP

Types of gaps:
1) common gap
2) break away gap
3) run away gap
4) exhaustion gap


Common Gap
Characteristics:
-is not supported by high volume.
-the gap is closed very soon, around 1 week.

Fig. 29

Break Away Gap

Break Away Gap UpCharacteristics:
-is supported by high volume.
-indicates bullish.
-usually the gap is not closed.
-usually the gap penetrate importance level.

fig. 30

Break Away Gap Down

Characteristics:

-is supported by high volume.

-indicates bearish.

-usually the gap is not closed.

-usually the gap penetrate importance level.

fig. 31

Run Away Gap


Run Away Gap Up

Characteristics:

-is supported by high volume.

-indicates bullish.

-basically, it begins with a trend.

-it indicates more intensity on the trend.

Run Away Gap Down

Characteristics:

-is supported by high volume.

-indicates bearish.

-basically, it begins with a trend.

-it indicates more intensity on the trend.

Fig. 32

Exhaustion Gap
The gap is exhausted usually after a long rally or near the top of a trend.

Fig. 33

Examples:

Fig. 34 Common Gap

Fig. 35 Exhaustion Gap

Fig. 36 Break Away Gap

Fig. 37 Run Away Gap

14 - GAP

What Does Gap Mean?
A break between prices on a chart that occurs when the price of a stock makes a sharp move up or down with no trading occurring in between. Gaps can be created by factors such as regular buying or selling pressure, earnings announcements, a change in an analyst's outlook or any other type of news release. (investopedia)

fig. 26A

How can we tell if the gap was closed?
See fig. 26B.

fig. 26B

Another example:

Fig. 27A

Fig. 27B

Another example:

Fig. 28A

Fig. 28B

In the next chapter, we will discuss type of gaps.

13 - VOLUME

Volume is also important indicator besides price.
Volume indicates transaction that is happening during trading hour.
With volume, we can also determine the intensity of the stocks.


Basically, volume is recorded in bar in chart or we call it volume bar.
In chart, it is located below the price.


For example:

Fig. 25A

Fig. 25B

High volume bar means high interest of investors.

Low volume bar means low interest of investors.

High volume during trading day doesn't means more buyer than seller.

This is totally wrong.

Even though the volume is high during trading day, buyers and sellers always equal.

In addition, volume indicates the liquidity of one stock.

In the US market, one stock is liquid if the average daily transaction at least 500.000 shares.

What if we buy a stock that is not liquid?

We will find it hard to sell the stock because of the less interest of the buyers.

In this case, we see from the spread of bid and ask.

Example of the not liquid stock (Fig. 25C):

Fig. 25C

Compare it with this liquid stock (Fig. 25D):

Fig. 25D

Here's the relationship between price and volume:

1) price up & volume up = bullish

2) price up & volume down = bearish

3) price down & volume down = bullish

4) price down & volume up = bearish

Another relationship of price and volume:

If volume high, but the price is just going sideways, this indicates accumulation or distribution.