Gap Up

Implication

Gaps usually represent important areas of support or resistance. A Gap Up will indicate different situations based on the context in which it was formed. A Gap Up in an uptrend may indicate a previous level of resistance has been broken and now forms a support level. A Gap Up in a downtrend may indicate an end to, or a reversal of, the prior downtrend. Gaps provide an indication of a financial instrument's SHORT-TERM outlook.

Description

A Gap Up forms when the low for a period (usually day) is higher than the previous period's high.

Trading Considerations

Since Gaps represent important areas of support or resistance they can be used to measure the strength of moves. If a price breaks through a Gap it is usually a signal of a significant price move.

Criteria that Support

Three Gap Ups within a trend indicate a possible end to, or reversal of, that trend. The three Gaps do not have to occur on sequential days, but may form many days apart.