Breakout Gap

Breakout Gap
By
www.CandlestickForums.com

Using Candlestick patterns as
a guide, traders can identify
and profit from trading a
breakout gap in a stock.


In general terms a breakout
gap is a discontinuous pattern
in stock charting.


It occurs when the prices of
stocks break out from a
narrow or congested range of
trading.


Typically the high stock price
for the day and the low stock
price for the day move
gradually up and down day by
day.


A break out gap will be when
the stock price seems to jump
out of the daily pattern, either
up or down, out of
consolidation pattern.


The common experience
when a breakout gap occurs is
that the stock will move up
rapidly and substantially.


Those who learn to read
Candlestick pattern
formations will be able to
identify that pattern and will
typically be able to trade
profitably.


To learn both Candlestick
analysis and specific trading
patterns an excellent idea is to
take an online basic stock
market training class coupled
with the Candlestick forum
boot camp online.

There are several types of
gaps including runaway gaps,
exhaustion gaps, and common
gaps, as well as breakout gaps.


In each case stock prices move
quickly from a relatively
continuous progression up,
down, or sideways to a
discontinuous jump up or
down.


In each case the price jumps
leave gaps on stock charts.


Those interested only in long
term investing can really
dislike gaps, unless the
investor also is astute in
technical analysis of stocks
using Candlestick chart
analysis.

Although the long term
investor will not buy stock and
sell stock frequently he or she
will be pleased to pick up a
stock just before it goes up
substantially in price.


The trader, who routinely uses
Candlestick charting
techniques, will see a
breakout gap and realize that
he or she may just be in trader
heaven and ready to make a
nice profit.

Identification of a breakout
gap not only helps stock
traders but will be useful to
stock options traders as well.


An options trader who
indentifies a breakout gap and
reliably predicts a rise in stock
price in a timely manner may
be able to profit from buying
calls on the stock in question.


The difference in buying call
options instead of the stock is
that the trader will hold the
option but not the obligation
to buy.


If the stock goes up in price as
anticipated the trader will
exercise the option for a
profit.


If the stock does not go up in
price or goes down then the
trader will only lose the price
of the premium paid for the
option.


In general, the more rare the
occurrence of this kind of gap
the more reliable it is.


For example, in a volatile stock
market, daily gaps in stock
price charting may be rather
common.


These, daily, gaps are less
predictive than gaps that
occur over a week.


More so, gaps over a month,
or a year can be substantially
more predictive of large and
rapid price moves.


Thus the trader who is astute
in reading a breakout gap may
be able to profit substantially
from the timely purchase of
the stock in question.


Breakout Gap

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