Earlier this week i spoke about common gaps. Today I will look at Breakaway Gaps with an example on CPU recently.

Breakaway gaps are the more exciting type of gap that can, along with other rules in a system, produce trading opportunities. They occur when the price action is breaking out of their trading range or congestion area. Volume should  pick up significantly, for not only the increased market activity, but many are holding positions on the wrong side of the breakout and need to cover or sell them. It is better if the volume does not happen until the gap occurs. This means that the new change in market direction has a chance of continuing. The best break away gaps are associated with typical chart patterns like symmetrical, descending or ascending triangles.

Below is an example in CPU. There was a symmetrical triangle that formed over a period of around 5 to 6 weeks then had a break away with increased volume and a continuation in the direction of the breakaway.

(click on image to enlarge)

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