Figure 1: Breakaway Gap

In Figure 1, Aztech formed an ascending triangle price pattern which is bullish in nature. It broke out of the price pattern accompanied by a price gap up. As an ascending triangle is biased to the upside, the breakaway gap added more bullishness in the direction. It must be noted that the volume accompanying the breakout is high as well.

A Continuation gap occurs during a sharp price movement in advance or decline. This type of gap often occurs halfway between a previous breakout and the ultimate duration of the move. It is normally accompanied with positive news and investors reacted to it in an exuberant manner.

When a price contains more than one runaway gap, it indicates that the trend is very powerful. However, market participants should be wary if there is a presence of a second or third gap as this is a sign that the move is likely to be out of steam soon. There is a possibility that a second or third runaway gap may be the last one. Hence an exhaustion gap is associated with the termination of a preceding move and is the last in a series of runaway gaps. One good clue would be to look at the volume. Exhaustion gap is normally accompanied with unusually high level of volume. It is important to note that, exhaustion gap signals a likely price consolidation after the termination of a move and may not regarded as a major reversal.