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Thomas Bulkowski’s successful investment activities allowed him to retire at age 36. He is an internationally known author and trader with 30+ years of stock market experience and widely regarded as a leading expert on chart patterns. He may be reached at

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Chart Patterns: After the Buy
Getting Started in Chart Patterns, Second Edition book.
Trading Basics: Evolution of a Trader book.
Fundamental Analysis and Position Trading: Evolution of a Trader book.
Swing and Day Trading: Evolution of a Trader book.
Visual Guide to Chart Patterns book.
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Bulkowski's Price Gaps

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Busted
Patterns
Candles Chart
Patterns
Event
Patterns
Small Patterns
Market
Industrials (^DJI):
Transports (^DJT):
Utilities (^DJU):
Nasdaq (^IXIC):
S&P500 (^GSPC):
As of 12/11/2017
24,386 56.87 0.2%
10,371 -31.68 -0.3%
763 4.90 0.6%
6,875 35.00 0.5%
2,660 8.49 0.3%
YTD
23.4%
14.7%
15.6%
27.7%
18.8%
Tom's Targets    Overview: 11/30/2017
24,600 or 23,500 by 12/15/2017
9,900 or 10,500 by 12/15/2017
800 or 750 by 12/15/2017
7,100 or 6,700 by 12/15/2017
2,725 or 2,575 by 12/15/2017

Written by and copyright © 2005-2017 by Thomas N. Bulkowski. All rights reserved. Disclaimer: You alone are responsible for your investment decisions. See Privacy/Disclaimer for more information.

My book, Encyclopedia of Chart Patterns Second EditionEncyclopedia of Chart Patterns 2nd Edition book., pictured on the left, covers 63 chart and event patterns, including gaps. The book discusses performance statistics and explores how gaps behave. It's worth buying a copy.

Image of a gap

Closed Gap and Gap

Gaps are useful for showing support or resistance zones but as a tradeable, by the time you properly identify them, the move is nearly over. If you already own a stock and a chart pattern breaks out in a gap, then hold on for a strong move. Performance improves two-thirds of the time in the chart patterns I looked at.

Gaps: Important Bull Market Results

Percentage of gaps closing within a week, upward breakouts:

Area gaps: 89%
Breakaway gaps: 2%
Continuation gaps: 4%
Exhaustion gaps: 61%

Percentage of gaps closing within a week, downward breakouts:

Area gaps: 92%
Breakaway gaps: 1%
Continuation gaps: 9%
Exhaustion gaps: 64%

The above numbers are based on hundreds of perfect trades. See the glossary for definitions.

Gap Identification Guidelines

Gaps occur when today's high is below yesterday's low (bearish gap), or today's low is above yesterday's high (bullish gap).

Gap TypeDiscussion
Area, common or pattern gapsOccurs in congestion (trendless markets) and closes quickly, usually in a few days. Volume on the gap day may be high but returns to normal in a day or two. No new highs (upward trends) or lows (downward trends) occur after the gap. A distinctive price curl as the gap closes quickly is a clue to this gap type.
Breakaway gapsStarts a new trend and the gap often occurs on leaving a consolidation area, usually on high volume on the gap day, which can continue for several days. Price trends for several days.
Continuation, measuring, or runaway gapsGap occurs during a straight-line advance or decline. Price makes new highs or lows without closing the gap. Volume is usually high.
Ex-dividend gapsCaused by a dividend distribution. Price moves down by the amount of the dividend and a gap appears but it's usually closed by the end of the trading day.
Exhaustion gapsHappens at the end of a trend on high volume. The gap is not followed by new highs or lows, and the gap may be unusually wide. After the gap, price consolidates or reverses direction. Commonly occurs after continuation gaps. Exhaustion gaps usually close within a week.
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Gap Trading Tips

Gap TypeExplanation
Area, common or pattern gapsThese close too quickly to be of trading significance.
Breakaway gapsLook for a high volume gap and trade in the direction of the trend. The best performance comes from breakaway gaps in a bull market near the yearly high. In a bear market, trade those near the yearly low. Large breakaway gaps outperform small ones.
Continuation, measuring, or runaway gapsOn a time basis, usually marks the halfway point in an upward price move. By price, the gap appears 43% of the way from trend start to gap center. For downward breakouts, the gap appears 69% of the way on a time basis, and 57% on a price basis. Measure from the swing low or high to the gap center and project from the gap center to the predicted high or low.
Ex-dividend gapsThese close too quickly to be of trading significance.
Exhaustion gapsIf an unusually wide gap occurs, it may mark the end of the trend (immediately or within a few days). Violent reversals can follow an exhaustion gap, so consider taking a position in the new direction.
Stop lossGaps are places of price support or resistance, so they make for good stop locations. Place a stop a few cents below the gap (upward breakouts) or above the gap (downward breakouts).
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Average Time to Close the Gap (bull market)

Closing the gap means price rises/declines to fill the gap, covering the opening. See the chart near the top of this page for an example of a closed gap.

Trading TacticExplanation
Area, common or pattern gaps3 days for both breakout directions
Breakaway gaps136 days for upward breakouts, 168 days for downward breakouts.
Continuation, measuring, or runaway gaps98 days for upward breakouts, 77 days for downward breakouts.
Exhaustion gaps9 days for upward breakouts, 14 days for downward breakouts.

Tip: gaps that occur on the day of a chart pattern breakout suggest a better performing chart pattern two out of three times, regardless of the breakout direction.

Gap Example

Gap chart pattern example

The above figure shows examples of various gap types. Breakaway gaps exit from congestion areas. Area gaps close quickly. Exhaustion gaps appear at the end of a trend. Continuation gaps show in the middle of trends.

-- Thomas Bulkowski

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Other Gap Examples

See Also

Written by and copyright © 2005-2017 by Thomas N. Bulkowski. All rights reserved. Disclaimer: You alone are responsible for your investment decisions. See Privacy/Disclaimer for more information. Computers are not intelligent. They only think they are.