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Technical Analysis Plain and Simple: Charting the Markets in Your Language, Third Edition by Michael N. Kahn - CMT

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11. Chart Patterns—Explosions

Sometimes, perceptions in the market change so rapidly that the market seems to explode higher or lower. The extreme form of this action is a market crash, but we can see this rapid shift of perception after takeover announcements or earnings news following unrealistic projections. Rather than a gradual spread of news and market information, it spreads rapidly. This is sometimes exaggerated by news emerging between trading sessions so there was no time for a gradual reaction. As the market opens, all of the pent-up buying or selling is released and the market rockets higher or lower, respectively.

Technicians call these situations gaps because they leave a void on the charts. A gap is simply a price level ...

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