10. Mind the Gap—When Price Jumps Signal Change
The gap is one of the strongest price pattern signals. It often accompanies reversal or marks the beginning or end of a trend. It is also found in many beginnings and endings of secondary trends in a longer-term primary trend.
These highly visible signals often are the first attributes analysts notice on a chart. This is especially true when a large gap appears, moving price out of range and setting up an uncertain new level of resistance or support, at least temporarily: “Because technical analysis has traditionally been an extremely visual practice, it is easy to understand why early technicians noticed gaps. Gaps are visually conspicuous on a price chart.”1
Key Point
Gaps are noticed immediately; ...
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