How to trade using Runaway Gap Trading Strategy?
How to trade using Runaway Gap Trading Strategy?
Different parts of Runaway Gap Trading Strategy
The Runaway gap means a gap formation in the middle of a trend. Consider a stock is in uptrend already and in the middle of an uptrend, price gap ups. This kind of gap is called Runaway gap. This is a sign of trend continuation. This type of gaps will get filled soon of it is created.
There are three major parts which forms this pattern.
1. Prior uptrend – The market was on uptrend the previous day. Market is already trending
2. Gap up & drop – Price gaps up the next day and after 2-3 candles, price starts dropping towards previous day’s closing price, filling the gap created earlier in the day.
3. Reversal candlestick pattern near previous day’s closing price – Price continue to drop till the previous day’s closing price and Price forms Reversal candlestick pattern near previous day’s closing price. This is the signal for price reversal to the upside. Note, in this case, price may not close the gap fully.