Gaps reveal sudden and important shifts in crowd sentiment through a single price bar. They can print anywhere within the charting landscape but tend to occur in several distinct patterns. Each type predicts specific characteristics in regard to persistence, response during retracements and their impact on trend. Gaps cut though all time frames but represent very different phenomena in each one. For example, a breakout move in one time frame may print an exhaustion event in another.

Gap importance relies upon location, extension and volume. They can print in the major trend direction or against it. When a significant gap opposes the current market momentum, it represents the only chart phenomenon that signals trend change without a common top or bottom pattern. A narrow or tall price bar can stand at the far end of a gap move. A tall bar tends to predict a quick followthrough in the direction of the gap. A short bar suggests sideways action or a pullback test into the violated space.

Gap location signals both the character and mechanics of subsequent price action. Sharp gaps through clear S/R signify important breakouts and breakdowns. Pressure can build so strongly at these levels that gap width may be a high percentage of the stock's total value. Emotional bursts can trigger multiple gaps when active trends build strong momentum. Gaps that print within congestion display far less persistence and may fill with little warning or volume. And high participation gaps that occur late in trend development often signal violent reversals.

Wide gaps that exceed demand can short-circuit further price movement in that direction. Market players push stocks toward equilibrium each morning. But they also profit when price reaches the far edge of supply-demand. They understand that this imbalance should provoke a measurable reversal back toward equilibrium. No simple formula describes how far a new gap can travel before triggering a sharp reaction. So always apply common sense when observing pre-market action to determine whether the environment justifies the ramping price.

Participation will limit or fuel gap strength. Certain S/R events only verify when strong volume accompanies them. For example, breakout gaps without solid volume invite a strong reversal even if they print at a perfect location. This relationship between gaps and crowd participation relies upon complex interactions. For example, a high volume gap may end the trend because it uses up the last available supply. But another with less volume leaves enough on the table to ensure further movement in that direction.