Having an understanding of gaps is essential so that you can plan your trades. There are many kinds of gaps in the stock market, including :

>Common gaps

>Breakaway gaps

>Runway gaps

>Exhaustion gaps

Gaps typically occur when there is a more significant difference between the bid and ask, and most of the gaps occur at the market opening because, in an alive market, there is not much difference between bid-ask spreads and current prices.

COMMON GAP

The term “common gap” refers to a small, common gap. Whenever the market opens sideways, and there is a tiny gap from yesterday’s Coles to today’s open, like 0.3% to 0.3%, then we call it a common gap.

A common gap is also called an area gap, and a trading gap is, characterized by average trading volume and generally does not offer any good trading opportunities.

BREAKAWAY GAP

Breakaways Gaps occur when a stock is consolidated, and a gap breaks a range of consolidation. Then we call it a breakaway gap. Generally, a breakaway gap indicates the start of a new trend. A gap can be identified by a sharp rise in trading volume, which can trigger swing or intraday trades.

RUNAWAY GAPS

A runaway gap is an indication of a healthy trend. We call it a Runway Gap when there is no consolidation but a gap between yesterday’s closing and today’s opening.

The runaway gap indicates strength and can be used to book profits from existing swing positions. Runaway gaps usually occur after the breakaway gaps, as the runaway gap indicates the continuation of a particular trend.

EXHAUSTION GAP

In general, the exhaustion gap indicates a trend reversal. Usually, the exhaustion gap occurs when there is a big gap, but the price reverses and fills the gap, continuing that trend for a short time.

The four types of gaps that every trader should know about are listed below. Each gap created in the market tries to indicate a potential move, so every trader should have a basic understanding of the different types of gaps.