Figure 3: Continuation Gap with high volume

Osim as shown in figure 3 had a first gap down in late Oct 2006. 3 month later it had another gap down accompanied with unusually high volume. It qualifies as an exhaustion gap as this is a second gap and since it comes with high volume. Price then went into consolidation as what is expected from an exhaustion gap. This consolidation lasted 3 months to late April before the price gaps down again.

This article has discussed 3 types of price gaps and how we can use them to aid in our analysis. Breakaway gap is most useful if there is a preceding price pattern. Continuation gap which extends the preceding movement may lead to exhaustion gap which in turn may hint of price consolidation ahead. Lastly, volume is a big clue in identifying an exhaustion gap.