2011issue C0122-23
Constructing volume-confirmed breakaway gaps
A breakaway gap is a gap that carries price out of a prior trading range. This construction first confirms that range exit, then uses volume confirmation and session close location to decide whether the same-day print is even a candidate.
- Only a gap that takes price out of a prior trading range is built as a breakaway gap. A gap that stays inside the range is a common gap and is excluded.
- A large upward gap is not treated as enough evidence that price will keep rising.
- Volume confirmation needs a surge large enough to see at a glance. A 10% to 20% rise above typical activity is treated as too small, and a range-exit gap on light volume is discarded.
- A close near the session high is the preferred same-day structure. Giving back most or all of the day's advance weakens the candidate.
What this construction tests
Price gaps are grouped into common, runaway, exhaustion, and breakaway types. Only the breakaway type is used for this construction.
A breakaway gap is a gap that carries price out of a prior trading range rather than printing inside it. That range exit is the structural feature that separates it from other gap types.
Confirm the range exit first
A trading range is a sideways price band that has held activity for an unspecified stretch of time. Gaps that print while price remains inside that band are classified as common gaps and are excluded from breakaway-gap construction.
No fixed lookback is required for the preceding range. A longer consolidation is treated as making the later range exit more significant.
An abrupt supply-demand shift, including an earnings surprise, a new government contract, or a possible buyout, is cited as a condition that can produce a breakaway gap.
Apply volume confirmation
Volume confirmation is a visually obvious surge in activity used to accept or reject a range-exit gap. The expansion must be large enough to recognize at a glance on the chart, taken as evidence that large institutional participation arrived with the gap.
A 10% to 20% rise in volume above typical activity is treated as too small to confirm a breakaway-gap construction.
A range-exit gap on light volume is treated as lacking conviction and is discarded as a weaker construction.
Read the session close location
Session close location is where the gap session settles relative to its high after the range exit. After the gap, a close near the session high is the preferred same-day structure.
Giving back most or all of the day's advance weakens the candidate.
All readings on this track · 7 readings
- 1991The midpoint retest after a missed breakaway gap
- 2011Constructing volume-confirmed breakaway gaps
- 2011The first close after a breakaway gap as a classroom breakout test
- 2011Constructing candlestick, breakaway-gap, and Elliott-wave signals
- 2013A PHM breakaway gap stacked with Elliott labels and mapped support
- 2019Breakaway gap after a completed double bottom
- 2019Evaluating upward breakaway gaps by changing one rule at a time