The<strong> breakaway gap </strong>usually occurs upon completion of an important price pattern and signals a significant market move. A breakout above the neckline of a head and shoulders bottom, for example, often occurs on a breakaway gap.
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The <strong>runaway gap </strong>usually occurs after the trend is well underway. It often appears about halfway through the move (which is why it is also called a measuring gap since it gives some indication of how much of the move is left.) During uptrends, the breakaway and runaway gaps usually provide support below the market on subsequent market dips; during downtrends, these two gaps act as resistance over the market on bounces.
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The <strong>exhaustion gap </strong>occurs right at the end of the market move and represents a last gasp in the trend. Sometimes an exhaustion gap is followed within a few days by a breakaway gap in the other direction, leaving several days of price action isolated by two gaps. This market phenomenon is called the island reversal and usually signals an important market turn.
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|Publication:||International Business Times - US ed.|
|Article Type:||Brief article|
|Date:||Aug 21, 2009|
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