Gap can be used to confirm ALL of the technical patterns such as head & shoulders, cup and handle, ascending and descending triangle, and etc. Most of the time gaps are viewed as continuation signal but some gaps are stronger than the others. One of the most powerful gaps is breakaway gap and I am going show you how to use it as pattern confirmation.
First of all let me go through MY definition of breakaway gap. Breakaway gap is a gap that jumps over a major technical support/resistance level. This type of gap is very powerful and creates a very strong support/resistance zone. Sometimes breakaway gap can accompanies by news (e.g. earnings) that makes it even better. Below are examples of breakaway gap:
Okay, now we are going to at a gap as pattern confirmation. It is the same concept as above but only to apply on different type of technical patterns. To start off, let’s look at Rounding Bottom with a gap up as confirmation (Japanese called it Fry Pan Bottom). With rounding bottom, a confirmation comes right after the curl (not at major resistance level). You can see from the picture below that the gap after the curl is also became a good support zone. However, once that support zone is broken it is consider as a bearish breakdown.
You can see that breakaway gap can provide an extra confirmation to many patterns, and a lot of times also result in stronger support/resistance zone. Above are only a few examples to give you an idea on how to use it. This pattern confirmation concept can be used with all other chart patterns. However, it doesn’t mean that breakaway gap confirming technical patterns will result in positive outcome all the time, but it does increase the odds of pattern working.
Learn more about other chart patterns HERE.
If you have any questions about this concept; please leave your comment below or contact me directly by email at info@boomstocks.com.
