Subsequently, it broke to the upside 27% and made several gaps. The different types of gaps are useful to know about when choosing what course of action to take.
The first gap is a breakout gap, as prices penetrate the upper level of the pattern and break to the upside with incomparable vigor. This is usually an excellent place to enter a trade.
The second and third are runaway gaps, which signal a move that is not planning on stopping any time soon. Note: These gaps do not get filled completely.
Finally, the climax, or exhaustion gap. This happened today. Prices gap up one last time, but quickly reverse on high volume. As the gap is completely filled, I move to exit the trade with my tail between my legs. A climax after several very volatile price swings often signifies an impending large reversal.
It did. Much like after a human climax, it got tired, and crashed. EXK finished down 10% at $11.17
Here is the chart that shows each gap. See if you can tell the differences. Note that the final gap was filled within five minutes, so it is difficult to see.
Gaps generally work in our favor if they are breakaway or runaway gaps, but when a climax is spotted, be prepared to take action fast.
I will be looking for trades tomorrow night and will post my findings.
~Christopher Diodato
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