Lessons › Market structure › Gap types: which gaps fill and which run

World 2 · Market structure · lesson 15 · level 3

Gap types: which gaps fill and which run

Where a gap happens tells you whether it is the start, the middle or the end of a move.

In one line

Some gaps get filled in days, others never look back. Where the gap appears hints at which kind it is.

Explained simply

Imagine jumps on a walk: a small hop over a puddle, a big leap to start a race, a jump in the middle of the race, and a last tired jump before you stop. Gaps on a chart are like that, and where the jump happens tells you what kind it might be. A gap is filled when price later walks back over the empty space.

The lesson

Common gaps appear inside ranges and are often filled soon. Breakaway gaps jump out of a range, often on heavy volume, and can start a new trend, while runaway gaps appear in the middle of a strong trend. Exhaustion gaps come late in a long move and are often filled quickly. The type is often clear only afterwards, so traders plan for more than one outcome.

A worked example

Illustrative example: a stock moves sideways between 90 and 100 for 25 days, then gaps up on heavy volume. The day before the gap its high was 100, and the gap day's low is 104, so the empty space is 4 (104 minus 100). A jump out of a range like this looks like a breakaway gap. From a close of 108, the gap would be filled only if price fell 8 (108 minus 100) back to 100.

The same idea at four levels

1. Beginner. A gap's type depends on where it appears: inside a range, at the start of a move, in the middle or near the end.
2. Foundation. Common gaps sit inside ranges, breakaway gaps leave a range, runaway gaps come mid-trend and exhaustion gaps come late.
3. Intermediate. A gap up is filled when price trades back down to the high of the candle before the gap, and a gap down is the mirror.
4. Advanced. Heavy volume on a gap out of a range makes a breakaway more likely, while a late gap followed by a quick reversal hints at exhaustion.
5. Expert. Because the type is often clear only afterwards, experts plan for both a fill and a run and never assume every gap must fill.

Mistakes to avoid

• Believing every gap must fill.
• Labeling a gap's type with certainty before the move after it has played out.
• Ignoring volume, which helps separate a breakaway gap from a common one.

Goal of this lesson: Tell common, breakaway, runaway and exhaustion gaps apart by where they appear.