💥A runaway gap, also known as a measuring gap or continuation gap, is a type of gap that occurs in the middle of a trend. It is usually seen as a signal that the current trend is likely to continue, as opposed to a reversal.
💥A runaway gap occurs when the price moves rapidly in the direction of the trend and leaves a gap in the price chart. The gap represents a period of strong momentum and can be seen as a sign of investor enthusiasm. Runaway gaps can be formed during an uptrend or a downtrend and can occur in any market, including stocks, commodities, and forex.
💥Traders often use runaway gaps as a signal of a continuation of the trend, and may use it as an opportunity to enter or add to a position in the direction of the trend. For example, in an uptrend, a trader may look for a runaway gap as an indication of a strong upward momentum and may buy the stock to take advantage of the potential upside.
💥It's important to note that like all technical indicators, runaway gaps are not always reliable and can be subject to false signals. It's essential to use other technical indicators and analysis to confirm trading decisions and avoid false breakouts. Additionally, managing risk and setting stop-loss orders can help limit potential losses in case the trade goes against the expected trend.
💥The definition of a runaway gap helps technical analysts remember that "how much it has come, it will double further." This is because a runaway gap occurs in the middle of a trend. For example, if the price has moved up from €100 (after a breakaway gap) and continued up to a second gap (runaway gap) around €150, it can be predicted that the price target or resistance will be around €50 after the runaway gap or around €200, as the runaway gap is used as a measuring tool for distance in the trend.
💥In a runaway gap situation, it is said that only normal volume can easily move the market. In an uptrend, this means that the market can continue to move up after the gap. However, in a downtrend, the market will undoubtedly go down.
💥Like a breakaway gap, a runaway gap can also act as support and resistance, but it should be noted that if it is a real signal, the gap should not be closed. This means that the price should not move down to close the gap in the coming days in an uptrend. When the gap is closed, it could signal a reversal, causing traders to sell instead of buy.