Profiting with Chart Patterns book

Figure 3-21.
Price Gap Structure Diagram
What is amazing about Measured Gaps and the way they got their namesake is that 
they really do tend to measure the halfway points in moves. You will start to notice 
how gaps near the center of a chart or gaps that happen away from support or 
resistance tends to be the midpoint of the move.
Measured Gaps are related to Exhaustion Gaps. With Exhaustion Gaps, what you 
have is a gap that occurs at the end of a move. The difference between an Exhaustion 
Gap and a Measured Gap is that you have price turned back into the gap in the case 
of an Exhaustion Gap. After you have had a move occur for some distance, you want 
to give it about three or four bars after the move to make sure that you have price 
continuing in the same direction. In that case, it is a Measured Gap. However, if price 
turns around and enters the gap then it probably is an Exhaustion Gap. There is no 
way to tell until you see what happens after the gap. Keep that in mind as you are 
looking at these patterns. When you see a gap in the middle of a move, well after a 
recent support or resistance level has formed, you want to wait two or three bars to 
see what kind of gap it is before you trade it. The entry points for both Measured and 
Exhaustion Gaps are marked on the Eighths lines. The best gaps are those that are 
very obvious in the charts.

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Chapter 3 Definitions, Structures, & Examples
©
 Nirvana Systems Inc.
3-23
Profiting with Chart Patterns
I cannot stress enough that there is nothing magic about a gap or support level or 
anything else. What you are looking at is how the market is reacting to the picture. 
That is what is key. You want only to trade the very obvious gaps.
Breakaway Gaps: Anthem Inc.
In the following example of Anthem Inc., go back through the end of January and just 
follow those bars as it went along. You can see that the distance from one bar to the 
next is very consistent. There is one small gap there at the early in February, but 
generally, those bars are right next to each other until you get to February 16th. 
Figure 3-22.
Breakaway and Measured Gaps Shown on the Chart for Anthem Inc.
We have almost a dollar gap from the 12th to the 16th this tells you that the chart is 
probably going up. The Breakaway Gap is labeled a Breakaway Gap because it occurs 
fairly close to the low point at $117. 

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Chapter 
3 Definitions, 
Structures, 
& 
Examples
Profiting with Chart Patterns
3-24
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