Runaway Gap

What Is a Runaway Gap?

A runaway gap, ordinarily seen on charts, happens while trading activity skirts sequential price points, typically driven by extreme investor interest. All in all, there was no trading, defined as an exchange of ownership in a security, between the price point where the runaway gap started and where it ended.

Grasping Runaway Gaps

As a rule, gaps in a security's price will happen when the price makes a critical spike in one or the other a vertical or downward heading. A runaway gap is one of several gaps that might happen during a trend. This type of gap, best saw on a price chart, happens during strong bull or bear moves, and is described by a huge price change toward the common trend.

During a trend, a security's price might experience several runaway gaps which can assist with building up the trend's course. Market experts have estimated that runaway gaps frequently happen after a security has experienced a breakaway gap, as the likelihood of a startling event, regularly a report, that can advance the existing trend, rises.

The psychology behind a runaway gap is that traders, who didn't get in during the initial move, become weary of waiting for a retracement, to join what they see to be a trending market, and bounce in en masse. This sudden buying or selling interest occurs in a flash, normally catalyzed by an unforeseen report, which powers the market maker to place bids/offers at price points that are farther away from the last traded price prior to the gap framing. The excitement of traders to connect with, in some cases verging on panic, drives them to trade at these wide price levels, which brings about the security's price hopping up, or down, leading to the formation of the runaway gap.

Gaps

Gaps can be an important price signal for a technical trader as they mean a substantial change in a security's price starting with one trading period then onto the next. Hence, gaps will more often than not give miniature experiences to perceptions over an extremely short period of time since they are framed from the combination of two continuous candlestick patterns.

Generally, a gap is described by a 5% increase from the previous closing high of an up candlestick to the new opening price of the next candlestick, or a 5% reduction from the previous closing low of a down candlestick to the new opening price of the next candlestick.

Traders can follow candlestick patterns in a great many augmentations going from one moment to one year, or higher. Thusly, gap signals, or patterns, can be more, or less, solid in view of the time increases in which they are framed.

Runaway Gap Formation

A runaway gap will normally happen amidst a trend, be it up or down. It is regularly defined as a gap of 5% or more that happens toward a current trend and is portrayed as a runaway gap due to the timing of its occurrence. It is likewise ordinarily associated with high trading volume supporting the spike in price. The chart below shows a runaway gap in a large vertical move.

Trends and Runaway Gaps

Bullish and bearish trends for the most part follow trading cycles that, generally, incorporate breakaway gaps, runaway gaps, and a exhaustion gap. These gaps are recognized by the previously mentioned 5% price change criteria, yet they are separated by the timing of their occurrence.

A breakaway gap will commonly happen to support the indication of a trend reversal. It might follow a pinnacle resistance pattern, or a trough support pattern. As a security's price follows a bullish or bearish trend, the market environment will be ready for several runaway gaps. Runaway gaps are normally joined by high trading volumes, which would support investor confidence toward the trend. Runaway gaps should be visible as added proof that the current trend is practical.

Highlights

• Market professionals have guessed that runaway gaps frequently happen after a security has experienced a breakaway gap.
• A runaway gap, commonly seen on charts, happens while trading activity skirts sequential price points, typically driven by serious investor interest.
• The psychology behind a runaway gap is that traders, who didn't get in during the initial move, become weary of waiting for a retracement to join what they see to be a trending market and bounce in all at once.