Constructing gap signals from skipped price zones

Discard uninformative blanks first

TradersWeek editorial reading: build gap analysis as a discard-then-classify checklist. First throw out thin-market and corporate-action blanks. Then sort the remaining void by chart scale, pattern location, volume sequence, and next-session behavior so a breakaway or exhaustion reading is a hypothesis that later price action can falsify.

A skipped zone is treated as informative only when it is wider than ordinary bid-offer spacing of one-eighth to one-half point. Narrower blanks are ignored.

Thin trading in mid- to high-priced names and dividend adjustments can leave blanks that do not mark a change in trend or crowd perception.

Read the remaining void against chart scale

Daily charts produce gaps far more often than monthly charts because each session can trade beyond the prior extreme. A blank that appears only at a month boundary is rare enough to be noteworthy.

Classify by pattern location

A common gap inside a trading range, often with light volume, restates congestion and a lack of positioning interest rather than a breakout.

An interday breakaway gap that jumps a horizontal pattern boundary, such as a triangle or head-and-shoulders line, is constructed as confirmation that perceived value has shifted and a new trend phase has started.

Read volume before and after a breakaway gap

If volume is heavier after a breakaway gap than before it, the move is expected to extend before any fill. If volume increases before the gap, the next reaction may return to the skipped zone.

Tell a runaway gap from an exhaustion gap

A runaway gap during a strong trend typically does not mark a volume peak and is often placed near the midpoint of the move. On a logarithmic scale the vertical distance from the start of the move to the gap is expected to repeat from the gap to the end.

An exhaustion gap typically forms on the last or next-to-last day of a fast trend on very high volume, when late buying or panic selling meets an empty opposite side.

Because an exhaustion gap and a runaway gap can look alike except for the volume surge, a stop near the gap plus a next-session close near the gap edge and a fill within two to five days are used to classify exhaustion.

Use the gap as confirmation, not as a fill rule

Gaps are used as confirmation of an existing pattern rather than as a rule that every blank must be filled, because a return can take months or years.

TradersWeek editorial reading: a later gap-fill is a classification check. It is not a standing rule that every skipped zone must be revisited.