Gaps as potential Support and resistance
In this post in support
and resistance series we will discuss about gaps acting as support and
resistance. Gaps are formed when price moves up or down sharply with no trading
in between. Because of this chart will show a gap in price pattern.
Different types of gaps
There are different
types of gaps. It can be classified mainly into 4 types.
- Breakway gaps
- Exhaustion gaps
- Common gaps
- Continuation gaps
We will discuss more
about these different types of gaps in another post. Here we will consider only
one character of gaps, that is acting as support or resistance.
How gaps are normally formed
Normally when price
moves in a range, the lower level acts as support and upper level acts as
resistance. To break this range, price have breakout with big volume. Sometimes
this huge volume breakout can create gaps in chart. This breakout level will
now act as new support for upside breakout and resistance for downside break
out.
Gaps acting as support or resistance
Gaps will act as
effective support and resistance zones. I said zones as we always consider
support and resistance as price areas or zones and not a fixed point.
Those who missed the
chance to buy in the gap zone will try to buy when price reaches there. They
get a second chance to buy. When market reaches the level they will buy and
move price up. We know support zones are also called demand zones where buying
halts down movement of price and price starts to reverse from there.
Same thing happens
in case of resistance. The difference is sellers will be waiting to sell there
and thus price falls once reach that levels
Watch video below from share market Malayalam youtube channel to know more about gaps.
Check All posts in support and resistance series
We have done 4 videos about support and resistance. I will update this list once I add more.
Part 3 : How to draw support and resistance
Part 4 : Dynamic support and resistance
0 Comments