Bulkowski’s Price Gaps

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Important Bull Market Results

Percentage of gaps closing within a week, upward breakouts:

Area gaps: 89%

Breakaway gaps: 2%

Continuation gaps: 4%

Exhaustion gaps: 61%

Percentage of gaps closing within a week, downward breakouts:

Area gaps: 92%

Breakaway gaps: 1%

Continuation gaps: 9%

Exhaustion gaps: 64%

Identification Guidelines

Gap Type	Discussion
Area, common or pattern gaps	Occurs in congestion (trendless markets) and closes quickly, usually in a few days. Volume on the gap day may be high but returns to normal in a day or two. No new highs (upward trends) or lows (downward trends) occur after the gap. A distinctive price curl as the gap closes quickly is a clue to this gap type.
Breakaway gaps	Starts a new trend and the gap often occurs on leaving a consolidation area, usually on high volume on the gap day, which can continue for several days. Price trends for several days.
Continuation, measuring, or runaway gaps	Gap occurs during a straight-line advance or decline. Price makes new highs or lows without closing the gap. Volume is usually high.
Ex-dividend gaps	Caused by a dividend distribution. Price moves down by the amount of the dividend and a gap appears but it’s usually closed by the end of the trading day.
Exhaustion gaps	Happens at the end of a trend on high volume. The gap is not followed by new highs or lows, and the gap may be unusually wide. After the gap, price consolidates or reverses direction. Commonly occurs with continuation gaps. Exhaustion gaps usually close within a week.

Trading Tips

Gap Type	Explanation
Area, common or pattern gaps	These close too quickly to be of trading significance.
Breakaway gaps	Look for a high volume gap and trade in the direction of the trend. The best performance comes from breakaway gaps in a bull market near the yearly high. In a bear market, trade those near the yearly low. Large breakaway gaps outperform small ones.
Continuation, measuring, or runaway gaps	On a time basis, usually marks the halfway point in an upward price move. By price, the gap appears 43% of the way from trend start to gap center. For downward breakouts, the gap appears 69% of the way on a time basis, and 57% on a price basis. Measure from the swing low or high to the gap center and project from the gap center to the predicted high or low.
Ex-dividend gaps	These close too quickly to be of trading significance.
Exhaustion gaps	If an unusually wide gap occurs, it may mark the end of the trend (immediately or within a few days). Violent reversals can follow an exhaustion gap, so consider taking a position in the new direction.
Stop loss	Gaps are places of price support or resistance, so they make for good stop locations. Place a stop a few cents below the gap (upward breakouts) or above the gap (downward breakouts).

Average Time to Close the Gaps (bull market)

Trading Tactic	Explanation
Area, common or pattern gaps	3 days for both breakout directions
Breakaway gaps	136 days for upward breakouts, 168 days for downward breakouts.
Continuation, measuring, or runaway gaps	98 days for upward breakouts, 77 days for downward breakouts.
Exhaustion gaps	9 days for upward breakouts, 14 days for downward breakouts.