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Computerized Investing > Fourth Quarter 2011

Gaps

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by CI Staff

Anyone who has ever looked at a price chart has more than likely seen a gap—an area on a price chart where there were no trades. On a daily price chart, this normally occurs between the close of the market one day and the next day’s open. Gaps are the result of a temporary supply/demand imbalance, with prices dropping or rising sharply until balance is restored. This imbalance can be caused by many things, such as an after-hours earnings report that is significantly higher or lower than expected. Investors place orders for the next day based on the news, resulting in a gap between one day’s close and the next day’s open.

In this installment of Technically Speaking, we discuss four types of gaps—common, breakaway, runaway and exhaustion.

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