As the name itself implies, the Gap is a blank space between two candles on a chart. It is essentially a change in price between the close of a session and the open of the next session. Depending on the context, the Gaps are divided into 4 categories and the trading ideas change accordingly. The first category is the Common Gap or Area Gap. It is found nearly all the time, especially inside a trading range, providing no clue with random price action following the gap. Area Gap is filled soon. The second one is Breakaway Gap, which generally marks out a breakout from an established trading range with the volume rising markedly.
Following this gap gives the traders the best probability of a good return in a very short period. This kind of gap takes a long time to fill and on many instances, it would not be filled. The third kind area called Runaway Gaps or Measuring Gaps, as they tend to appear in the middle of the move. The trapped market participants panic and finally participate in the prevailing trend at this point, creating the gap. The last is the Exhaustion Gap, found at the very top or bottom of a move. It is frequently a good initial signal for a major trend reversal..