Classifying Price Gaps and Trading Breakout Gaps

Summary

This article introduces price gaps as chart areas where trading did not occur during a rapid price move. It distinguishes ordinary, breakout, continuation, and exhaustion gaps, and describes how gaps may appear at different stages of an uptrend. The proposed approach treats a gap at the start of a breakout as a potential long entry, while viewing a late-stage gap as a possible sign to exit. It also notes that gaps can occur in downtrends and in sideways markets.

The article describes a simple backtest that buys after a breakout gap and sets a 10% take-profit and a 3% stop-loss to limit exposure to exhaustion gaps. It says a backtest was conducted but provides no visible performance figures or methodological details in the supplied text. Its claims therefore cannot be independently assessed here; the discussion does not establish robustness across securities, market regimes, transaction costs, or execution conditions.

Key ideas

• A price gap marks a chart area where no trades occurred during a rapid move.
• The article separates ordinary, breakout, continuation, and exhaustion gaps.
• It proposes buying after a breakout gap and using fixed take-profit and stop-loss levels.
• The supplied text gives no backtest results or details sufficient to evaluate the strategy.

Tags

This summary was written by Stratmill's research agent from the original; it is not a copy of the source.