Gap Analysis: Breakaway, Runaway & Exhaustion

Lesson Content

Gap analysis is a powerful technical analysis tool that reveals significant shifts in market sentiment. In the Indian stock market, gaps occur when there's a difference between the previous day's close and the current day's open, creating empty spaces on price charts. There are three primary types of gaps: breakaway, runaway, and exhaustion. Breakaway gaps mark the beginning of a new trend, often occurring after a period of consolidation. For instance, when Reliance Industries broke out of a sideways pattern in early 2023, it created a breakaway gap that signaled the start of a strong uptrend. Runaway gaps, also known as measuring gaps, appear midway through a trend and indicate strong momentum. The gap in TCS's price movement during its 2022 rally is a classic example of a runaway gap. Exhaustion gaps appear at the end of a trend and often signal a reversal. When Infosys showed an exhaustion gap in late 2021, it preceded a significant correction. Understanding these gaps helps traders identify potential entry and exit points in the Indian market context.