Exhaustion Gap - Exhaustion Gap Stock
The
exhaustion gap occurs late in a big price move and is often a warning that the
strong trend may soon come to an end, making exhaustion gaps reversal patterns.
Occasionally, an exhaustion gap will mark the ultimate high or low at the end of
a trend. This is the chart depiction of panic buying in uptrends, or
capitulation during downtrends. During these times, traders want in or out
of the stock at any price. A
parabolic uptrend will often end with an exhaustion
gap.
Exhaustion gaps are marked by high volume, and can offer tremendous fade trade
opportunities with excellent profit potential as the tide turns and momentum shifts quickly. Exhaustion
gaps are filled soon after they are formed.
Example
of an Exhaustion Gap:
The example above shows an exhaustion gap to
the upside which occurred in this stock following a lengthy advance. The
exhaustion gap was quickly filled and marked the high for this stock.
These emotional price gaps caused by panic can provide some excellent trading
opportunities when looking for a reversal.
Be sure to learn more about gaps such as
common gaps,
runaway gaps, and
breakaway gaps.
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