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Gaps as potential Support and resistance

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.
  1. Breakway gaps
  2. Exhaustion gaps
  3. Common gaps
  4. 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.

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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.

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