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GAP THEORY

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GAP THEORY   WWW.FURTHERGROW.IN    A gap is an area on a price chart in which there were no trades. Normally this occurs after the close of the market on one day and the next day’s open. Lot’s of things can cause this, such as an earnings report coming out after the stock market had closed for the day. If the earnings were significantly higher than expected, this could result in the price opening higher than the previous day’s close. If the trading that day continues to trade above that point, a gap will exist in the price chart.  Gaps can offer evidence that something important has happened to the fundamentals or the psychology of the crowd that accompanies this market movement.  Gaps appear more frequently on daily charts, where every day is an opportunity to create an opening gap. Gaps can be subdivided into four basic categories: WWW.FURTHERGROW.IN • Common gap • Breakaway gap • Runaway/ Continuation gap • Exhaustion