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Continuation Gap Chart Pattern

Patrick Stockdale
Written by Patrick Stockdale | May 18, 2022

What Is A Continuation Gap Chart Pattern?

A continuation gap, also known as a "runaway gap", is when the price of a market gaps up or gaps down in the middle of an already established price trend in a market and the price then continues to trend in the direction of the underlying trend.

A continuation gap occurs when the opening price of a market is higher or lower than the prior closing price of a market with no trading or investing activity between the gap of the prior closing price and the new opening price.

A continuation gap can be either bullish or bearish depending on the direction of the gap and the underlying trend.

Types Of Continuation Gap Chart Patterns

There are two types of continuation gap patterns. The two types of continuation gap patterns are:

  • Bullish continuation gap: A bullish continuation gap pattern is when the price of a market gaps up in the middle of an already established bullish trend and continues to trend much higher prices after the gap up.
  • Bearish continuation gap: A bearish continuation gap pattern is when the price of a market gaps down in the middle of an already established trend and continues to trend much lower in prices are the gap down.

Continuation Gap Pattern Components

Continuation gap pattern components

In order to identify a continuation gap pattern, there will need to be specific components displayed on a price chart.

The components of a continuation gap pattern are:

  • An already established price trend: There will need to be an already established trend in the market before the gap in price. Continuation gaps can only form during an already established trend.
  • A gap up/gap down in the middle of the trend: The price will need to gap up from an already present bullish trend or gap down from an already present bearish trend.
  • An increase in the volume on the gap (optional): An increase in volume shows that the traders have conviction that the market will continue to trend in the direction of the trend. This is an optional component and it can add extra conviction of the price continuing to trend.
  • A continuation in a price trend after the gap: The market will need to continue trending in the direction of the underlying trend and price gap after the continuation gap pattern forms i.e. continue trending higher after a bullish trend and a gap up or continue trending lower after a bearish trend and a gap down in the price.

Continuation Gap Chart Pattern Examples

Below are visual examples of the continuation gap chart pattern.

Example Of A Bullish Continuation Gap Pattern

Bullish continuation gap pattern

On the daily price chart of Facebook stock above, a bullish continuation gap pattern formed. The price of Facebook stock was in a bullish trend.

The price of the market then gapped up and continued to rise and trend higher over the coming days and weeks.

Example Of A Bearish Continuation Gap Pattern

Bearish continuation gap pattern

On the daily price chart of Shopify stock above, a bearish continuation gap pattern formed on the price chart.

The price of Shopify stock was in a bearish trend. The price of the market then gapped down and continued to decline and trend lower over the coming days and weeks.

Example Of A Continuation Gap Pattern In The Stock Market

Continuation gap pattern in the stock market

On the price chart of the S&P500 Index above, a continuation gap formed. After the gap up, the price continued to trend much higher over the coming weeks.

How To Find Continuation Gap Chart Patterns

The methods for finding a continuation gap pattern in the market are:

  • Pre-market percentage movers scanner: This will help a trader to find markets that are gapping up or down in the premarket trading session.
  • Browse through the markets manually: This is the method of a trader manually browsing through the price charts looking for gaps.

Continuation Gap Chart Pattern Benefits

The benefits of the continuation gap pattern are:

  • It can help a trader to join a trend: If a trader misses the beginning of a trend, a continuation gap pattern can help a trader join the trend for the next phase of the trending market.
  • It is easy to spot: A trader can easily spot a continuation gap as all that is required is an already established trend and a gap in the price of a market.
  • It can offer a high reward to risk ratio: A continuation gap pattern can result in a market trending for many weeks or months. This means a trader can potentially get a high reward to risk ratio on a trade.
  • It is easy to scan for: A trader can use free scanners to easily scan for these continuation gaps in the markets.

Continuation Gap Chart Pattern Limitations

The limitations of the continuation gap pattern are:

  • The gap up/down can fail and reverse: The price may reverse and the continuation gap can and will fail from time to time.
  • Finding a specific entry point can be hard: Finding a perfect entry point on a continuation gap up/gap down can be hard and traders typically drill down to lower timeframe price charts to assist in getting the best entry point.

Frequently Asked Questions About Gap Chart Patterns

Below are frequently asked questions about the gap chart pattern.

Is A Continuation Gap Pattern Bullish Or Bearish?

A continuation gap pattern can be either bullish or bearish depending on whether the gap in price was up or down and whether the underlying trend was bullish or bearish.

What Does A Continuation Gap Pattern Tell You?

A continuation gap pattern tells a trader that the price of a market will continue to trend in the direction of the underlying trend and the direction of the gap.

So if a market is in a bullish trend and the price gaps up higher, a continuation gap tells a trader that the price will continue to increase after the gap up.

If the market is in a bearish trend and the price gaps down lower, a continuation gap tells a trader that the price will continue to decrease after the gap down.

What Is The Difference Between A Continuation Gap And An Exhaustion Gap Pattern?

The differences between a continuation gap and an exhaustion gap price pattern are:

  • Where it forms: A continuation gap pattern forms in the middle of a trend whereas an exhaustion gap pattern forms at the end of a trend.
  • What it signals: A continuation gap pattern signals a continuation of a price trend in a market whereas an exhaustion gap signals a reversal in the price of a market after the gap.