Getting Things Moving
In order to fully understand the breakaway gap, you have to understand the normal fluctuations of the stock market, which allow people to make a profit through trading at the right time. The stock market naturally moves up and down in response to consumer demand for a particular security. Most of the time these up and down trends have a great deal of continuity, but sometimes there are breaks in the normal process, called gaps or spaces, which indicate that the market is changing with regards to that particular stock.
If you were to ask a technical analyst for a definition of the breakaway gap, they would tell you that it is a breakaway gap that represents a price jump in the movement that’s supported by high volume levels of trading.
When you’re stock has been facing some congestion, and you notice that prices that keep acting like they’re going to move up, but then fall back down, it’s important to stay on the lookout for the breakaway gap. Spotting it could indicate that you’ll soon be in a position to sell your shares for a tidy profit. Look for a period of stagnant trading where the price has remained relatively stable, followed by a gap that can either be bearish or bullish. There’s a good chance that the direction of this gap is the direction in which the new trend will continue.