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Trading and Investment Terms

Breakaway Gap

A gap is one of the most important special trading price bar configurations. 

A gap is a major, visible discontinuity between two price bars on a chart.

 A breakaway gap is an important event because it almost always marks the start of a new trend.

 

You interpret a breakaway gap depending on whether it’s upward or downward, according to supply and demand, in the following way:

  • Upside breakaway gap: Good news creates demand. New buyers want to own the security and are willing to pay ever-higher prices to get it. Volume is noticeably higher than usual.
  • Downside breakaway gap: Traders can’t wait to get rid of their holdings and accept ever-lower prices to achieve that goal. Volume may or may not be abnormally high.

Some examples of when a breakaway gap may form are an earnings surprise, award of a new government contract, or the possibility of a buyout. 

Will the stock continue to rise? We can never know for sure, 

But the charts give us some clues as to whether it might be worth entering a trade and riding the trend. 

 

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