Updated on March 7, 2023
A Breakaway Gap is a type of price gap that occurs when the market is in an uptrend and the bulls are in control. It is characterized by a gap higher on the chart, which is followed by a significant upward move. This gap indicates a sudden increase in buying pressure, which causes the price to move higher, creating a gap on the chart.
How is the Breakaway gap used in trading and investing?
Breakaway gaps can occur as a result of important news or events that are likely to have a positive impact on the stock or market. For example, a company may announce a new product or a merger, which causes investors to become bullish on the stock, resulting in a gap higher on the chart.
Breakaway gaps can also be used as a bullish signal, indicating that the bulls are in control of the market and that the uptrend is likely to continue. Traders may use this signal to identify potential buying opportunities and to set stop-loss orders above the gap.
Additional points to remember
Breakaway gaps can also occur in a bearish trend as well, in that case, it is called a Breakaway Gap Bearish Reversal pattern, indicating a sudden increase in selling pressure. It is important to confirm the trend and the pattern with other technical analysis tools before taking any trading decisions.