Global Market Astro has tried to explain the types of gap chart patterns used in stock market forecasts and in trend analysis in this blog. Let’s stream through the explanation and illustration for Common and breakaway gap chart patterns.
COMMON GAP
The common gap often occurs during the price movement of a security. It is not much significant like other gaps but is always worth to note down. These gaps occur when the security trades in a range and they will be smaller in terms of gap’s price movements. They occur as a result of general events such as low volume trading days or due to an announcement of stock split. These gaps get filled quickly and moves back to the pre-gap price range.
BREAKAWAY GAP
The breakaway gap generally occurs at the beginning of a market move after the security has traded in a consolidation pattern which happens when the price is non-trending within a bound range. It is referred as breakaway gap as it moves the security from a non-trending to a trending pattern.The breakaway gap is a good sign that the new trend has started.
A strong breakaway gap out of a consolidation period is taken to be much stronger than a non-gap move out. The gap indicates a large increase in sentiment in the direction of the gap, which will probably last for some time period, resulting to an extended move.
The strength of this gap and the accuracy levels of its signal can be confirmed by considering the volume during the gap. The larger the volume out of the gap, the more likely the security will continue in the direction of the gap, also reduces the chances of it being filled.
While the breakaway gap generally doesn’t fill like the common gap, it will in some cases. The gap will often provide support or resistance for the resulting move. For an upward breakaway gap, the lowest point of the second candlestick provides support. A downward breakaway gap provides resistance for a move back up at the maximum price in the second candlestick.
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