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Key Takeaways
- The classic taxonomy sorts gaps by location in a trend: common gaps form inside a range, breakaway gaps leave one, runaway gaps appear mid-trend, and exhaustion gaps appear at the end of a move.
- A breakaway gap clears the range boundary on heavy volume: the example opens at $27 above the $24.90 range top on 6.16 times its six-session average.
- An island reversal is a bar or cluster of bars isolated on both sides, entered on a gap in one direction and left on a gap in the other.
- A measuring gap projects the move already made: from the $24.80 origin to the $31.30 gap midpoint is $6.50, and another $6.50 targets $37.80.
- A gap fills when price trades back to the prior close; the example’s common gap fills the next session, and the breakaway gap stays open.
- Use the subsequent sequence to classify continuation or exhaustion. The example’s final gap is followed by an opposing range gap that isolates one candle.
What are the types of gaps?
The types of gaps are four categories in a classic taxonomy that sorts price gaps by where they form in a trend. Common gaps form inside a trading range, breakaway gaps leave one, runaway or measuring gaps appear mid-trend, and exhaustion gaps appear near the end of a move. An island reversal combines opposing gaps that isolate a candle or cluster from neighboring ranges.
Gap Up and Gap Down defines the opening and range measurements. Gap types add the surrounding price structure.
| Type | Price Structure |
|---|---|
| Common | Inside the trading range |
| Breakaway | Clears the range or pattern boundary |
| Runaway / Continuation | Appears within an extending trend |
| Exhaustion | Precedes the stall or reversal that ends the move |
Formula
Gap % = (open − prior close) / prior close × 100; Measuring-gap objective = gap midpoint + (gap midpoint − move origin)- open is the first regular-session print and prior close is the previous regular-session close.
- Gap midpoint is the average of the prior close and the new open.
- The move origin is the $24.80 close before the breakaway gap, where the advance began.
- For a downtrend the projection subtracts: objective = gap midpoint − (move origin − gap midpoint).
- The gap midpoint sits halfway between the origin and the objective: the measuring gap marks the middle of the move.
Common gap and breakaway gap example
A stock spends weeks between $20.00 and $24.90, gaps down inside that range and recovers, then gaps out of the range on heavy volume, gaps again in the middle of the advance, gaps a third time into a weak close, and gaps back down the following session.
- Common gap: a $21.90 open against a $22.60 close is a $0.70 gap that the next session fills
- Breakaway gap: a $27.00 open against a $24.80 close is $2.20, or 8.9%, and clears the $24.90 range top
- Measuring gap midpoint: ($30.60 + $32.00) / 2 = $31.30
- Measured objective: $31.30 + ($31.30 − $24.80) = $37.80
- Exhaustion gap: a $37.60 open against a $36.20 close, a $38.10 high, and a $37.50 close near the session low
- Island reversal: the next session opens at $36.10 with a $36.30 high, below the $37.30 exhaustion low
The $31.30 midpoint gives a $37.80 objective, and the later $38.10 high runs $0.30 past it before the reversal, so take profit at the target. The $37.30–$38.10 island candle is isolated by the preceding $36.40 high and the following $36.30 high, a top that sends price back below $36.40.
The common gap opens at $21.90 after a $22.60 close, a $0.70 decline or 3.1%. The following session reaches $22.80, crossing the prior-close fill reference.
The breakaway opens at $27 after a $24.80 close, an 8.9% increase, and clears the $24.90 range top. Its $26.80 low also stays above that prior high, leaving a $1.90 gap between completed ranges.
Its volume is 7.8 units against 7.6 units for the six sessions before it, an average of 1.267, so the breakaway prints on 6.16 times normal volume: the move has backing.
How is a measuring-gap target calculated?
The trend later gaps from a $30.60 close to a $32 open, a $31.30 midpoint. The move began at the $24.80 close before the breakaway.
Objective = midpoint + (midpoint − origin) = $31.30 + $6.50 = $37.80.
The gap between the completed ranges runs from $30.90 to $31.80, a separate zone from the $30.60 close and $32 open that set the target.
Exhaustion gap and island reversal example
The late gap candle has O $37.60, H $38.10, L $37.30 and C $37.50. Its high exceeds the objective by $0.30, and its close sits 25% of the range above its low. Volume reaches 8.6 units, the sequence’s highest reading.
The preceding candle’s high is $36.40. The following candle’s high is $36.30. Both lie below the island low of $37.30, isolating its full range.
The entry gap is between $36.40 and $37.30, and the exit gap between $36.30 and $37.30, so the island floats above the $36.40 to $37.30 band on both sides. A bottom island mirrors it, with both flanking lows above the cluster’s highest high.
How sessions and opening auctions shape gaps
Opening auctions match eligible orders at one auction price, and on a regular-session chart that print is the open the gap is measured from. Chart one session throughout: a regular-session chart and an extended-hours chart put different trades in each candle and show different gaps.
A Fair Value Gap compares the outer ranges of three candles instead.
Trading plans around gap levels
Mark the range boundary, gap edges and target. Define entry, invalidation, order type and position size. For an island setup, act once the opposing gap prints and your confirmation event completes.
Take the gap’s objective, such as the $37.80 measuring-gap target, into the Options Profit Calculator and price each structure there with the chain’s post-gap implied volatility and an expiration that covers the run.
Limitations of gap classification
- Let the following sessions assign the label. A runaway gap and an exhaustion gap look alike when they print, and the opposing gap that completes the example’s island is what marks exhaustion.
- Fix the range, the move origin, the session and the gap measure before you set levels. Measured from the completed ranges instead of the open, the runaway gap’s upper edge moves from the $32 open to the $31.80 low.
- Take profit at the measuring objective. The example’s high passes $37.80 by $0.30 and then reverses.
- Plan for gaps that stay open. The breakaway gap above $24.90 holds through the end of the sequence, and the fill level moves with the reference: the prior close or the range edge.
- Hold one volume baseline. The 6.16 multiple uses a six-session average, and another window gives another ratio.
Bottom line
Gap types describe where a gap sits in a move: inside a range, leaving it, extending a trend or ending one. Mark the range, the gap edges and the session definition first, then let the following sessions confirm the label before relying on a measuring target or an island reversal.
Clear answers
Frequently Asked Questions
Sources and Further Reading
- Kenneth Gilliland, Far And Away: Breakaway Gaps, Technical Analysis of Stocks & Commodities 29:1
- Caporale and Plastun, Price Gaps: Another Market Anomaly? Investment Analysts Journal 46(4)
- Nasdaq Trader: Opening and Closing Crosses
- NYSE: Auctions
- SEC: Trade Execution, What Every Investor Should Know
How entries are sourced, calculated and updated: editorial methodology.